Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS

SHEFFIELD GENERAL CEMETERY BILL

Lords amendments agreed to.

Oral Answers to Questions — FOREIGN AND COMMONWEALTH AFFAIRS

Helsinki Agreement

Mr. Sproat: asked the Lord Privy Seal what regular steps his Department takes to monitor breaches of the Helsinki Agreement by other countries.

The Minister of State, Foreign and Commonwealth Office (Mr. Douglas Hurd): Instructions have been given to British embassies in the Soviet Union and Eastern European countries to monitor and report regularly on implementation. Information is also exchanged regularly with our partners in the North Atlantic Treaty Organisation and the Nine. A summary of the results will continue to be made available to the House at six-monthly intervals until the review conference in Madrid next year. I am making the latest such report in a pursuant reply to my hon. Friend the Member for Chislehurst (Mr. Sims) today.

Mr. Sproat: Is my hon. Friend satisfied with the progress made in persuading the Soviet Union to fulfil the pledge in the Helsinki Agreement that there would be a much freer flow of information into and out of the Soviet Union and inside it? Which British newspapers, and how many copies, are freely and openly available in Moscow? What is the Minister doing to increase the number of British newspapers on sale?

Mr. Hurd: We are not satisfied with the progress made, although there has been some improvement since the Helsinki conference. However, there has not been enough improvement and that will be pursued at the Madrid review conference next year.
I understand that British newspapers can be found, but often only in tourist hotels. A preference appears to be given to the Morning Star, which we would not all think to be justified.

Mr. James Lamond: Has any monitoring been done in Britain as regards breaches of the Helsinki Agreement? Is there any evidence that dissident workers who have published pamphlets attacking either their own management or the Government, have been dismissed?

Mr. Hurd: No, and that is not a question for me.

Anglo-French Co-operation

Sir Anthony Meyer: asked the Lord Privy Seal what discussions he has had with the French Foreign Minister on the possibilities of increasing co-operation between Great Britain and France.

The Lord Privy Seal (Sir Ian Gilmour): I took part in the discussions that my right hon. and noble Friend had with the French Foreign Minister on 19 November during the recent Anglo-French summit meeting.

Sir A. Meyer: As Franco-British relations appear to be stuck in a groove, would it not be a good idea for our two countries to co-operate by putting forward schemes for European co-operation? Perhaps we could co-operate with them on defence and on their nuclear programme and by using our reserves of coal and oil to make Europe stronger and safer.

Sir I. Gilmour: I agree that Anglo-French co-operation should be increased. The scope for collaboration in nuclear energy was touched on by my right hon. Friend the Secretary of State for Energy during discussions with the French Minister in the margins of the recent Anglo-French summit. We are certainly ready to play our part.

Mr. Shore: I hope that I did not misunderstand the Lord Privy Seal. Was


he referring to civil nuclear power co-operation as regards the talks held at Downing Street? I certainly hope so. Was there any discussion of the French ban on imported British lamb? What was the attitude of the President of France to our representations and his position vis-á-vis the EEC?

Sir I. Gilmour: Naturally, I was referring to civil nuclear power and that is why I referred to my right hon. Friend the Secretary of State for Energy, rather than my right hon. Friend the Secretary of State for Defence. The right hon. Gentleman will agree that the subject of any conversations at summit meetings cannot be discussed. However, the subjects that the right hon. Gentleman has raised will no doubt arise later during Question Time.

Namibia

Mr. Ford: asked the Lord Privy Seal if he will make a statement on the progress of the latest round of talks concerning Namibia called by the United Nations Secretary-General.

Mr. Hooley: asked the Lord Privy Seal whether any agreement has been reached between the five Western States and the Government of South Africa on a date for the termination of South Africa's illegal occupation of Namibia.

The Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Richard Luce): The United Nations Secretary-General arranged consultations in Geneva from 12 to 16 November between senior United Nations officials, the five Western Powers and representatives of the parties to the Namibia negotiations. There were useful discussions of the proposal for a demilitarised zone on Namibia's northern border. I hope that this proposal will contribute to a solution of the problems holding up implementation of the United Nations plan for elections under United Nations supervision and control and, of course, South African withdrawal.

Mr. Ford: Is the Minister aware that there is considerable scepticism about whether Mr. Sam Nujoma represents properly the view of all the peoples of Namibia and that there is great apprehension about the arrangements to be

made to contain SWAPO forces during a ceasefire and/or an election? Will the Minister ensure that our representatives take into account the representations of all parties within Namibia, including the multi-racial parties?

Mr. Luce: It is for the people of Namibia and no one else to decide who should be their representative. As regards the containment of SWAPO activities, that is precisely the point of the proposals for a demilitarised zone. Its purpose is to provide for the anxieties expressed in certain quarters about maintaining security during the holding of free and fair elections. On the last part of the hon. Gentleman's question, the internal parties are not parties to the ceasefire discussions, but, in terms of holding elections in Namibia, they are equal with any other party taking part in the elections.

Mr. Jim Spicer: I agree with my hon. Friend that it is for the people of Namibia to decide who is to form a Government, but why does the United Nations hold firmly to the view that only SWAPO is, or can be, the legal Government of Namibia? Is it not time for a change in that direction; and cannot the Government do something to ease us towards that?

Mr. Luce: The Government's view is that it is for the people of Namibia to decide. One development that it is important to acknowledge is that all the parties to the problem of Namibia have accepted that there should be United Nations-supervised elections under United Nations authority. That is an important political basis on which to proceed.

Mr. Robert Hughes: Will the hon. Gentleman ensure that he is not carried away by the South African propaganda which is, regrettably, espoused in the House? Is it not clear that the South Africans have no intention of allowing a stable Government and a peaceful settlement in Namibia? Will the Minister recall for discussions the Government's representative in Luanda, since he can personally report on the regular marauding of South African troops into southern Angola?

Mr. Luce: I have no intention of being carried away by anybody. As the hon. Gentleman knows, the South African


Government took part in what the Secretary-General of the United Nations regarded as useful discussions about a demilitarised zone. As long as they are prepared to continue discussions, one must assume that they are interested in a negotiated settlement.

Mr. William Shelton: Does my hon. Friend agree that the future of Namibia may depend to some extent on a peaceful conclusion to the problem of Zimbabwe-Rhodesia?

Mr. Luce: I accept that the two issues are inter-related. If we can make progress on one, it may assist us in making progress on the other.

Mr. Shore: The Minister has reported some progress, but it is not very specific and we are all aware that the negotiations have taken an exceptionally long time. Can he tell us a little more about the present area of disagreement to be negotiated and when the next stage in the negotiations will start?

Mr. Luce: The right hon. Gentleman will recall that in the spring of this year the major outstanding matter on which there was an impasse was the question of security and the provision of security for the holding of free and fair elections in Namibia. Since then, there have been extensive consultations about how we can overcome the problem. That is what led to the concept of a demilitarised zone, which is the subject of discussions at present. As a result of the discussions in Geneva, the United Nations Secretary-General has proposed that there should be further detailed discussions about that idea, subject, of course, to the acceptance by all parties of the concept of a demilitarised zone.

Gibraltar

Mr. Russsell Johnston: asked the Lord Privy Seal if he will make a statement on the future of Gibraltar.

Sir Ian Gilmour: Following the meeting in New York on 24 September between my right hon. and noble Friend and the Spanish Foreign Minister, we are continuing to seek a way of resolving the present differences with Spain over Gibraltar. It must be consistent with the British pledge to respect the wishes of the people of Gibraltar with regard to their future. The maintenance of

restrictions by Spain makes the search for a mutually acceptable solution more difficult; their removal would make progress easier.

Mr. Johnston: Will the Lord Privy Seal say how he sees the future democratic representation of Gibraltar, perhaps on the French model? Has it been considered in regard to the House? How does he see it in Europe?
What possible justification can democratic Spain have for maintaining the border restrictions introduced by the dictatorial regime which has been replaced?

Sir I. Gilmour: On the first part of the hon. Gentleman's question, we do not have any plans to have Gibraltar represented in the House. I entirely agree with what the hon. Gentleman said in the second part of his question. There seems to be no justification for the continuance of the restrictions.

Mr. Robert C. Brown: Will the right hon. Gentleman give the House an unequivocal assurance that in no circumstances, whether for alliance, convenience or any other consideration, will he disregard the inalienable right of people to self-determination?

Sir I. Gilmour: That assurance was fully contained in the answer to the original question.

Mr. McQuarrie: Is my right hon. Friend aware that, having spent from 1969 to 1975 under siege in Gibraltar, I know more about the problem than any other hon. Member?

Mr. Russell Kerr: They are missing the hon. Gentleman in Gibraltar.

Mr. McQuarrie: I thank the hon. Gentleman. Have we not reached the time when the Government should, as a matter of urgency, consider holding talks with Spain? We keep hearing of talks about talks, but we never get to the stage of having talks that will do something towards removing the dreadful situation of the 200 yards and the barrier gate separating the Gibraltarians from their Spanish friends in La Linea, and the Spaniards in the Campo area from their relatives and friends in Gibraltar.

Sir I. Gilmour: I agree that my hon. Friend probably knows more than any


other hon. Member about the problem and that it is high time that progress was made. My hon. Friend will understand that we have had other matters on our mind, but we are hoping that we shall be able to make progress before long.

Mrs. Dunwoody: Does not the right hon. Gentleman think it sensible to point out to the Spanish that, if they wish to enter the EEC, one of the essential planks must be the freedom of movement of workers both ways and that it will not be acceptable for them to regard Gibraltar as not being part of that sort of arrangement?

Sir I. Gilmour: I agree with the hon. Lady. She may be aware that when I was in Gibraltar I said that it was unthinkable that two parts of the Community could subsist with a frontier closed between them.

Latin-American Refugees

Mr. Whitehead: asked the Lord Privy Seal if he will raise in the United Nations Commission on Human Rights the position of political refugees in Latin America.

The Minister of State, Foreign and Commonwealth Office (Mr. Nicholas Ridley): The United Nations Human Rights Commission will hold its next meeting in February 1980. We shall consider what matters might be raised at this meeting nearer the time.

Mr. Whitehead: Does the Minister agree that the position of political refugees in Latin America is still of the utmost gravity? Would it not be more advantageous to the United Kingdom in making representations if we had not phased out the admission of political refugees from Latin America?
Will the Minister consider the case of Virgilio Bareiro, former director-general of the National Telecommunications Corporation of Paraguay, who has been refused political asylum in this country in spite of having been imprisoned without trial in Paraguay for 15 years?

Mr. Ridley: The special admission programme is a matter for my right hon. Friend the Home Secretary, but the hon. Gentleman will know that there is no reason why Latin American refugees should not apply to come into this country.

They will be treated on their merits, as are refugees from all over the world. If the hon. Gentleman writes to me about the case that he mentioned, I shall look into it.

Mr. Grieve: Will my hon. Friend not let concern for political refugees in Latin America disguise our concern for political refugees much nearer home in Europe who seek to get out of East Germany and elsewhere and are shot down in the process?

Mr. Ridley: While entirely agreeing with my hon. and learned Friend, may I point out that we should have a programme for the admission of refugees that is the same from whichever quarter they come. There should not be special privileges for one set of refugees as opposed to another.

Mr. Clinton Davis: Few of us would disagree with the conclusions just drawn by the hon. Gentleman, but how does he justify the advice that his Department has given to the Home Office that it is now safe for Chilean refugees in this country to be returned to that foul regime in Chile? Why does the hon. Gentleman take such a benign attitude towards that regime?

Mr. Ridley: We are not returning any refugees to any country. They either gain admission here or they do not. A number of Chileans here now wish to go back to Chile, and that could be because the human rights record of Chile is now, in many cases, no worse than that of some of the other offenders in Latin America.

Mr. Rowlands: The House will treat with great scepticism the last remark by the hon. Gentleman. Will he not reconsider the rather petty and callous decision that the Government have made in respect of the Latin-American political refugee programme? Does not the hon. Gentleman realise that that decision has condemned dozens of people, whose only crime was to speak against the dictatorship, to perpetual imprisonment and possible torture?

Mr. Ridley: The hon. Gentleman's prejudice should not lead him to views of scepticism such as he has expressed. Genuine refugees can still seek exile in this country and are likely to be given it,


but there is no need for a special programme. The hon. Gentleman should know that such a special programme is the responsibility of my right hon. Friend the Home Secretary and not mine.

Southern Rhodesia Act

Miss Joan Lestor: asked the Lord Privy Seal what reaction he has received from the front-line Presidents at the passing of the Southern Rhodesia Act and if he will make a statement.

Sir Ian Gilmour: The Presidents of the front-line States were informed of the contents and purpose of the Southern Rhodesia Bill at the time it was introduced. None of them made any formal comment about it to Her Majesty's Government. The debate at that time gave hon. Members the opportunity to discuss all aspects of the Rhodesia question. Since then, the Patriotic Front has accepted our proposals for the transitional period before independence and discussions are now proceeding on a ceasefire. I shall make a further statement when there are significant developments to report.

Miss Lestor: Could not the Lord Privy Seal be a little more forthcoming? Could he say, for example, what arrangements have been made during the transitional period for the peaceful return of all refugees and political exiles from Zambia, for example, to Southern Rhodesia in time for the elections? What further representations has he made about the constant bombing and infiltration into Zambia by the Rhodesian forces at a time when we are trying to organise a ceasefire?

Sir I. Gilmour: The hon. Lady will remember that we stated earlier that we shall facilitate the return of refugees as soon as we can. On the second point, the hon. Lady may have been in the House last week when I answered a private notice question on this point. We deplore all violence by either side at this very delicate stage of the negotiations. We are very close to an agreement and anything which endangers that is thoroughly to be deplored.

Mr. Amery: I fully appreciate that the process of negotiating takes time, but is my right hon. Friend aware that there is growing anxiety on the Zimbabwe-Rhodesia/Salisbury

side about the delay in implementing the dateline that his right hon. and noble Friend laid down? Could my right hon. Friend tell us how much further this dateline will be stretched?

Sir I. Gilmour: Naturally we want to proceed as quickly as possible. Everyone will accept that. Equally, my right hon. Friend will probably concede that the date was postponed because of what happened in Zambia last week. I cannot give a dateline, but I can assure my right hon. Friend that we are as anxious as anyone to proceed as quickly as possible.

Mr. Alexander W. Lyon: Have the Government accepted the principle of a Commonwealth peacekeeping force? If not, why not, particularly in view of the fact that Bishop Muzorewa is now increasing his private army to 25,000 at the expense of the taxpayers in Rhodesia?

Sir I. Gilmour: The hon. Gentleman has a fairly short memory. In view of what he said during the debate on the Southern Rhodesia Bill, I should have thought that he would have been more careful in his present comments. He will appreciate that we are discussing these matters at present. We had a three-hour discussion with the Patriotic Front last night and another two-hour discussion this morning and I shall be returning to discuss matters with them as soon as questions and the statement have been dealt with. I hope that the House will understand the position if we confine discussions on the ceasefire to the Lancaster House discussions and wait until we make a statement in the House.

United States Secretary of State

Mr. Temple-Morris: asked the Lord Privy Seal when he, or his noble Friend the Secretary of State for Foreign and Commonwealth Affairs, intends next to meet Secretary of State Vance.

Mr. Ridley: My right hon. and noble Friend will meet the American Secretary of State on 13 and 14 December in Brussels at the NATO Council meeting, and on 17 December when he will accompany my right hon. Friend the Prime Minister on her visit to the United States.

Mr. Temple-Morris: Will my hon. Friend urge the Foreign Secretary, when he meets Secretary of State Vance, utterly to deplore the events that are


taking place in the United States embassy in Tehran? Further, will my hon. Friend urge his right hon. and noble Friend to use all his endeavours to achieve the adoption of a firm and united Western response, to what is no more and no less than primitive blackmail?

Mr. Ridley: The United States is in no doubt about our support in the agony which that country is going through over the occupation of the American embassy in Tehran. Together with our friends in the Nine we have played, I believe, a useful function in helping the Americans in Tehran. We shall continue to assist the United States in any way that we can.

Mr. Dalyell: On a less important but none the less important matter, could the Foreign Secretary ask Secretary of State Vance whether he agrees with the leader in the New York Times regretting, from the point of view of the West, what this Government are doing to the BBC's external services?

Mr. Ridley: There are many people who have to ask others to do other things. Having not seen that leader I cannot respond to the hon. Gentleman's question.

Sir Paul Bryan: When the Foreign Secretary sees Secretary of State Vance will he bring to his attention the refugee situation on the Thai border? Is my hon. Friend aware that I visited those camps less than a month ago and all the prospects point to a build-up of refugees running into hundreds of thousands in the not too distant future? Those refugees have no prospect whatever of going back to their homes for a long time to come. Does my hon. Friend appreciate that this puts a tremendous burden on the Thai Government who will need all the support they can get from America, this country and the whole of the Western world?

Mr. Ridley: The decision of the Thai Government to accept these refugees was a courageous and humane one. We have offered to help them to discharge the resulting responsibilities in any way that we can both through the EEC and directly. I am sure that the United States will also respond. I shall draw what my hon. Friend has said to the attention of my right hon. and noble Friend.

Mr. Stoddart: When the Foreign Secretary meets Secretary of State Vance will he assure him that many of us who deplored the deposing of Mr. Mossadeq in 1953, and were against the regime of the Shah, nevertheless deplore the action of the Iranian students in imprisoning American hostages for the purpose of terrorism and blackmail? Will the hon. Gentleman assure the Foreign Secretary that he has the support of all Members of the House in obtaining the early and safe release of the hostages?

Mr. Ridley: I am grateful to the hon. Gentleman for what I am sure will be the sentiments of the whole House. Unless we can be sure of the security of diplomatic staff, it will be almost impossible to conduct business between States, whatever their differences.

Mr. Wall: Is consideration being given to withdrawing all Western embassies from Tehran? If not, why not.

Mr. Ridley: For the present I believe that the presence of our embassy and other Western embassies in Tehran is nothing but helpful in the short-term crisis that persists. However, the situation is being kept under close review.

Mr. Shore: There will be many matters that the Prime Minister and the Foreign Secretary will wish to discuss with Mr. Vance when they go to the United States. I hope that they will convey to him the Government's statement on their sense of outrage about events at the American Embassy in Tehran. The Opposition certainly share that feeling as we regard this as an outrageous breach of international law. Will the Government make it plain to Mr. Vance how much they appreciate the American Government's helpful intervention at one stage in the protracted London conference talks, with their offer of financial assistance in order to help solve the difficult problem of the purchase of under-used land in Rhodesia by Africans?

Mr. Ridley: I am sure that both the Prime Minister and the Foreign Secretary will be grateful for and feel strengthened by that assurance from the right hon. Gentleman about support in the Tehran embassy matter. I shall certainly pass on our thanks to the Americans for their helpful attitude over land in Rhodesia.

Mr. Cormack: On a point of order, Mr. Speaker. I must register a protest on behalf of many hon. Members who feel that it is outrageous that questions to the Foreign and Commonwealth Office should be cut short at this time.

Mr. Speaker: I am obliged to the hon. Member, but I must point out that I do not control that.

Oral Answers to Questions — EUROPEAN COMMUNITY

Council of Foreign Ministers

Mr. William Hamilton: asked the Lord Privy Seal when he next intends to meet the Foreign Affairs Ministers of the EEC.

Mr. Major: asked the Lord Privy Seal when he next intends to meet his colleagues in the EEC.

Mr. Spearing: asked the Lord Privy Seal when he next expects to attend a meeting of the EEC Council of Ministers.

Sir Ian Gilmour: At the Foreign Affairs Council in Brussels on 18 December.

Mr. Hamilton: Can the Lord Privy Seal give an assurance that he will take the initiative and raise the question of international co-ordination of aid to Kampuchea and other countries which are in dire need? The individual efforts of separate Governments seem to be inadequate to meet the challenge.

Sir I. Gilmour: I entirely agree with the hon. Member that this is a desperately serious problem. He will be aware that Britain has done more individually than most other countries. He will also be aware that on 30 October the Community decided to give a further £16 million for famine relief in Cambodia as its contribution to a world-wide effort to save the Cambodian people.

Mr. Major: Will my right hon. Friend convey to his colleagues in Europe, if necessary before his meeting with them in December, that if a suitable settlement to the problem of our net contribution to Europe is not agreed in Dublin, this issue will not go away? This House will not permit it to do so. Will he also advise his colleagues in Europe that if there is protracted wrangling on

this issue it will do great damage to the European cause in the United Kingdom, even among its most firm supporters?

Sir I. Gilmour: I agree with my hon. Friend. This issue will be discussed tomorrow and the next day in Dublin by the Prime Minister. It is a most serious issue and if it is not solved it certainly will not go away.

Mr. Spearing: Will the Lord Privy Seal confirm that the meeting on 18 December is formal as distinct from the informal meeting in Dublin this week? Nevertheless, will he assure the House that any agreement reached in Dublin on any matter which has not been debated in this House and has been requested by the Scrutiny Committee, will be debated before the substantive Council of Ministers meeting on 18 December or any other date that may apply?

Sir I. Gilmour: I am not sure how informal tomorrow's meeting will be. I am not sure that that is the best description of it. The hon. Member will be aware of the answer that my right hon. Friend the Chancellor of the Duchy of Lancaster gave on this matter. That answer was satisfactory.

Mr. Ian Lloyd: When the Lord Privy Seal or the Foreign Secretary meet their colleagues in the EEC will they take the opportunity, not least in response to the obvious bipartisan feeling in the House on this issue, to ask those colleagues when Western Europe as a whole will adopt a concerted, effective and resolute position on the situation in Tehran?

Sir I. Gilmour: That has already been done. My hon. Friend probably will be aware of the statement that the Nine issued on Tehran when we met last week. The Nine have been concerting their action very effectively and helpfully in Tehran, and I understand that the American Government have expressed their gratitude.

Mr. Jay: Surely the right hon. Gentleman must be aware that these meetings of Ministers are either formal meetings of the Council, whose decisions have the force of law, or they are not. Surely the forthcoming meeting in Dublin is not a formal meeting in that sense?

Sir I. Gilmour: It may or may not be, but it is an extremely important meeting and that is what I was seeking to convey.

Mr. Rost: Will my right hon. Friend find an early opportunity to make clear to our European friends that if there were a disruption of oil supplies from the Middle East we would, of course, in the interests of our European partnership, wish to help out? However, will he also make clear that there would be no question of our selling oil at below world prices, any more than we would expect to buy German cars or French wine at below world prices?

Sir I. Gilmour: I agree. Of course we will help our Community partners. We already export to the Community about 28 per cent. of our production, but it would be impracticable and disadvantageous for us to attempt to sell oil at below its market price.

Mr. Shore: When the Council of Foreign Ministers meets in its political co-operation role—and that was the point with which my hon. Friend the Member for Fife, Central (Mr. Hamilton) began—will the Lord Privy Seal ensure that he is satisfied that the collective responses and voices that are supposed to come out of Brussels are sufficiently timely and sufficiently strongly expressed? Like many hon. Members on both sides of the House, I was barely aware of the statement made about the position in Tehran as reflected in the communiqué from Senator O'Kennedy, speaking on behalf of the Nine. Obviously there can be occasions when it is useful to have a concerted voice, but I certainly hope that the Lord Privy Seal will take the view that an individual voice can supplement the concerted voice. I hope that he will take that point on board, not only in relation to Tehran, but other matters, such as Cambodia, on which we feel strongly.

Sir I. Gilmour: On a minor point, I do not think that this particular O'Kennedy is a senator. I take the right hon. Gentleman's point, but we do not have any control over the publicity that the statements of the Nine are given by the media over here. We issued a strong statement. Our attitude has been helpful and our support for the Americans has been unequivocal. Anything that we can do to ensure that our attitude is more widely understood, we shall do.

Mr. Hicks: asked the Lord Privy Seal when his noble Friend intends to

meet his European counterparts; and if he will make a statement.

Mr. Squire: asked the Lord Privy Seal whether his noble Friend has any plans to meet his European ministerial colleagues in the immediate future.

Mr. Roy Hughes: asked the Lord Privy Seal when his noble Friend expects to meet his European Common Market colleagues.

Mr. Knox: asked the Lord Privy Seal when his noble Friend expects to meet his EEC counterparts.

Mr. Hardy: asked the Lord Privy Seal when his noble Friend expects to meet his EEC colleagues.

Sir Ian Gilmour: My right hon. and noble Friend will meet his EEC colleagues at the European Council in Dublin tomorrow and on Friday.

Several Hon. Members: rose—

Mr. Speaker: Order. I propose to call first those five hon. Members whose questions are being answered.

Mr. Hicks: Can my right hon. Friend say what political initiatives the Foreign Secretary will submit to his colleagues as a way of contributing to resolving the imbalance of the United Kingdom contribution to the European budget? Does he not agree that the extension of the regional fund and the possibility of the introduction of the rural fund might be steps in the right direction which would also bring benefits to this country?

Sir I. Gilmour: Of course that is true. However, my hon. Friend will understand that at the meeting in Dublin the Foreign Secretary will not play the principal part. It is a meeting of Heads of Government. It is not for us to take a political initiative on this point. We have made clear what we seek from our partners. The Commission has put forward two papers, and we are Seeking a broad balance.

Mr. Squire: Will my right hon. Friend ensure that his office has the fullest consultation in advance of these meetings with our European parliamentary colleagues and the leadership to ensure that we retain the best advantage from any


initiatives taken by the European Parliament?

Sir I. Gilmour: Certainly. We remain in as close touch as possible with our Members of the European Parliament, who have an important role. We try to meet them when they are here and to provide as much briefing for them as they want or need.

Mr. Hughes: Bearing in mind that the Prime Minister now recognises that Britain is being fleeced as a result of our contributions to the Common Market, and the damage that it has already done to British trade and industry, does not the right hon. Gentleman think that it is about time the Foreign and Commonwealth Secretary told his European colleagues that enough is enough?

Sir I. Gilmour: The hon. Gentleman has his facts wrong. As I told the right hon. Member for Battersea, North (Mr. Jay) last month, the best way to gauge our trading performance with the EEC is to compare the export-import ratio of our bilateral trade. This was 82 per cent. in 1972 and 83 per cent. in the first nine months of this year.

Mr. Knox: Does my right hon. Friend expect that any further progress will be made at the meeting in the development of a Community foreign policy? If not, why not?

Sir I. Gilmour: I do not expect any further development in the Community foreign policy. I think that the answer to my hon. Friend's question "Why not?" is that there will be so much else to discuss—in particular, our very important budget problem.

Mr. Hardy: As our gross domestic product will suffer a more severe fall than that of any other member State next year, can we expect the Foreign and Commonwealth Secretary to follow up the Prime Minister's assertive words by pointing out to his counterparts in the Community that this country can no longer afford both the Conservative Administration and the costly common agricultural policy? Will the right hon. Gentleman's noble Friend ask them to say which they prefer?

Sir I. Gilmour: I do not think that my right hon. Friend the Prime Minister has put it in quite those terms. We have

made it clear that when, for reasons that are well known to the House, we have had to cut public expenditure, compared with what it would have been, a contribution or subscription of more than £1,000 million is unacceptable to us.

Mr. Budgen: Does my right hon. Friend agree that if there is any case for an enhanced regional fund, or for the idea of my hon. Friend the Member for Bodmin (Mr. Hicks) of a rural fund, those funds can best be paid for and administered on a national basis and not an EEC basis?

Sir I. Gilmour: I do not think that that is necessarily true.

Mr. Russell Johnston: Can the Lord Privy Seal shed any light on the proposals emanating from the Federal Republic of Germany about changes in energy policy? Can he give any indication of the Government's response?

Sir I. Gilmour: No Sir. I cannot help the hon. Gentleman on that. I have seen reports, but we have had no representations.

Mr. Foulkes: What problems does it create for the right hon. Gentleman in answering questions in the House when it is his noble Friend the Foreign and Commonwealth Secretary, and not a member of the elected House of Commons, who attends the meetings with the Foreign Secretaries of other countries?

Sir I. Gilmour: The hon. Gentleman has his facts wrong. In fact, I do attend the meetings of the Foreign Ministers.

Mr. Marlow: Will my right hon. Friend tell his colleagues in Europe that the United Kingdom budget deficit with our friends in the EEC must be reduced to zero, and not a penny less? [HON. MEMBERS: "More."] I am sorry—not a penny more. If our colleagues in Europe want to set about the destruction of the Community, which most of us favour—lest there be ambiguity, I add that I mean not its destruction but its continuance—the best thing they can do is not to bring about a balance in the United Kingdom's budget contribution?

Sir I. Gilmour: My hon. Friend has expressed our objective. Perhaps he has put it rather more starkly, but certainly our objective is a broad balance. We


believe that we have an unanswerable case. We hope that our partners will recognise that case and that we shall gain an equitable solution in Dublin. I agree with the implication of my hon. Friend's remarks, that if such consultation is not forthcoming that will be damaging to the Community.

Mr. Donald Stewart: How can the Lord Privy Seal maintain his attitude about trade with the EEC, as the figures for the first nine months of this year show that our deficit is running at £3,211 million? If this is continued at the same rate for the 12-month period, we shall end up with a deficit of £4,280 million, compared with £2,247 million last year.

Sir I. Gilmour: It is true that our performance last year was better; it was 86 per cent. But what I was asked to do was to compare this year with 1972, before we entered. For those two years, the figures that I gave were correct.

Mrs. Dunwoody: Is the right hon. Gentleman aware that the Government's attitude seems slightly ambivalent? They say that they want changes in the CAP, but when it comes to the point they will not vote even for a gesture in that direction. We should regard it as totally reprehensible if any kind of deal were done that gave way on any other aspect of British policy.

Sir I. Gilmour: Our attitude is not ambivalent. We have made quite clear where we stand. The hon. Lady will know that the modifications proposed by the European Parliament would have had little effect on agricultural spending, which is determined by the decisions taken at the price fixing. Therefore, we did not believe that that was an appropriate way in which to tackle our problems, much as we sympathise with the Parliament's aim.
At the Council my hon. Friend the Financial Secretary to the Treasury made it quite clear that we should vote to reject the Parliament's amendments only if the Council would agree to an accompanying text expressing sympathy with the Parliament's wish to cut some expenditure, and agreeing that early action was needed to secure a better balance within the budget.

Several Hon. Members: rose—

Mr. Speaker: I shall call one more hon. Member from either side of the House, because five questions are being answered together.

Mr. Renton: Does my right hon. Friend agree with the leading article in the Financial Times recently on the question of the EEC summit in Dublin? That article ended with the advice to my right hon. Friend the Prime Minister that a capacity for compromise was not a sign of a lack of courage.

Sir I. Gilmour: I missed that leading article, but I am sure that the sentiments it expressed were impeccable.

Mr. Stoddart: Will the right hon. Gentleman make it quite clear to his counterparts in the EEC that the assurance given by my right hon. Friend the Member for Plymouth, Devonport (Dr. Owen), the previous Foreign and Commonwealth Secretary, that no further powers would pass to the European Assembly, still stands, and that he and the Government will resist any attempts by the European Assembly to usurp any powers of this or any other British Government, or of this Parliament?

Sir I. Gilmour: We have expressed our views on this matter often enough. As far as I know, the European Parliament has no plans to usurp any powers of any sort.

European Parliament (Elections)

Mr. Wigley: asked the Lord Privy Seal what progress is being made on discussions concerning the common system of election to be followed for the next election to the European Parliament.

Sir Ian Gilmour: Article 138(3) of the Treaty of Rome provides that the European Parliament shall draw up proposals for elections by direct universal suffrage in accordance with a uniform procedure in all member States. It goes on to say that the Council, acting unanimously, shall then lay down the appropriate provisions which it shall recommend to member States for adoption in accordance with their respective constitutional requirements. The European Parliament has not yet drawn up proposals.

Mr. Wigley: Will the right hon. Gentleman give an assurance on behalf of the Government that, as it is adopted by the


other EEC countries, they will accept a proportional representation system of election to the European Parliament? Will he consider proposing on behalf of the United Kingdom the regional list system, as outlined by the previous Labour Government?

Sir I. Gilmour: We rule out nothing. But there is a long way to go yet, and we must see what the European Parliament proposes before we can give any assurances.

Mr. Deakins: In deciding their attitude on this contentious issue, will the Government be concerned to strengthen or to weaken the European Assembly?

Sir I. Gilmour: I do not think that that is a matter that would come into our consideration. It seems to me that either electoral system might—I am unable to come to a judgment on this matter.

Mr. Hill: Will my right hon. Friend beware of the seduction towards PR in European terms? Is it not already apparent that the Members of the European Parliament are having an identification problem, without PR on a regional basis?

Sir I. Gilmour: I am not sure that I entirely accept what my hon. Friend says. I do not believe that people who are elected under PR necessarily have an identification problem. Having voted for PR in the House several times, I think it unlikely that I would express my hon. Friend's point of view. That does not alter the Government's view that we must wait to see what the European Parliament proposes before we can make any decisions.

Mr. Shore: As there is no actual proposal, I understand the Lord Privy Seal not wishing to over-commit himself, but all the same should it not be made plain to the Governments of Europe who will be considering this matter and the members of the European Assembly that there is a strong view among hon. Members on both sides of the House against the introduction of proportional representation either in the European elections or domestic elections? Is not that not quite contrary to the absurd propositions put forward by the President of the Commission, who obviously also has an influence in these matters?

Sir I. Gilmour: It is not for me to enter into these internal Labour Party squabbles. I appreciate what the right hon. Gentleman said. Certainly the House and the last Parliament made the majority opinion on this matter perfectly clear in the votes.

Oral Answers to Questions — OVERSEAS DEVELOPMENT

World University Service

Mr. Foulkes: asked the Lord Privy Seal what amount is being provided from the aid programme to the World University Service for scholarships and training for refugees.

Mr. Ridley: Grants to the World University Service (United Kingdom) for the training of refugee students are expected to total £2,965,000 in the current financial year.

Mr. Foulkes: Does the hon. Gentleman accept that the reduction in grant to the World University Service, coupled with the proposed increase in fees for overseas students, means that many fewer refugees will be able to be helped in the future? Will the Minister and his Government give special consideration to the case of the refugees who, unlike other overseas students, do not have Governments or families at home who can reasonably be expected to support them? Will the Government allow a reduction in the fees for these refugee students and treat them effectively as home students for the purpose of fees?

Mr. Ridley: The matter of fees is of course one for my right hon. and learned Friend the Secretary of State for Education and Science. The hon. Gentleman may know that the programme is available only to those genuine refugees from countries which are below the income levels which bring them within our aid criteria. As such, the number of them depends much more on circumstances than he perhaps realises.

Mr. Cormack: Does my hon. Friend accept that this country has a long and honourable tradition of helping refugees? Is there not a great deal to be said for what the hon. Gentleman advanced? Will the Minister please not tarnish the reputations of either the Government or the country by too readily giving way?

Mr. Ridley: I would say to my hon. Friend that there is no change in the arrangements for those who are already on courses here. However, the numbers accepted in the future will depend upon the criteria that I have just given to the hon. Gentleman.

Mr. McElhone: Despite the Minister's answer, does he not agree that one of the best ways of assisting Third world nations is to help with the education of their students? Therefore, is it not disgraceful that the reorientation unit of the World University Service, which co-ordinates the education of students, especially refugee students, and assists with obtaining jobs for them in the Third world when they have completed their studies, now finds that it has no money for next year? Is not that a totally nonsensical cut in public expenditure? Will the Minister reconsider the position?

Mr. Ridley: As I explained, there has not been a cut of the kind that the hon. Gentleman alleges. The programme for next year has not even been agreed. He must accept that the number depends very much on the numbers who apply.

Tanzania

Mr. Alexander W. Lyon: asked the Lord Privy Seal if he will give extra aid to Tanzania to allow for costs of removing Idi Amin from Uganda.

Mr. Hurd: No, Sir.

Mr. Lyon: As the Tanzanian economy was doing well before Amin invaded the country, and as the removal of Amin was welcomed by all the countries in the world, why is it that the British Government, along with many other Western Governments, have refused to help to pay for the cost of removing him?

Mr. Hurd: I think that the answer is very simple. We can all feel a certain relief that President Amin has gone. However, it does not follow that aid programmes financed by the British taxpayer should be increased to finance the military enterprises of another Government.

Mr. Fletcher-Cooke: What would be the cost of removing Tanzania from Uganda? Will we be expected to pay for that?

Mr. Hurd: I do not think that that is a question for me.

Mr. Russell Johnston: If it is true, as the hon. Member for York (Mr. Lyon) said a moment ago, that all countries in the world welcomed the removal of Field Marshal Amin, where is he now?

Mr. Hurd: Not, I trust, in this country.

Dame Judith Hart: Will the Minister, given his replies this afternoon, confirm that a generous aid programme for Tanzania will continue despite the attack made upon the Tanzanian Goverment by Lonrho recently? Will he confirm in that respect that the Foreign Office and the Overseas Development Administration have received a communication from Cooper Lybrand in Tanzania to explain that it dissociates itself from the recent Lonrho attacks on Tanzania and say that its own audit has not yet been completed?

Mr. Hurd: Our total aid last year to Tanzania was about £14 million and we would expect it to be slightly higher this year. We are reviewing the whole of our aid programme, as the right hon. Lady knows. Decisions will be taken and will be announced to the House. They will not be influenced by the Lonrho company.

Mr. W. Benyon: Will my hon. Friend look very critically at aid to Tanzania as long as she maintains a blockage on her borders with Kenya through both Tanzania and Uganda?

Mr. Hurd: Because of our economic circumstances we are having to look critically at the whole distribution of our bilateral aid programme. There are many factors which must be considered in the case of a country such as Tanzania. However, I think that it is in the interests of this country that Tanzania should have stability and reasonable economic progress.

Human Rights

Dame Judith Hart: asked the Lord Privy Seal if he will make a statement on his policy on aid and human rights.

Mr. Hurd: Our aid policy takes into account considerations of human rights and with this in mind we keep under review the situation in individual recipient countries.

Dame Judith Hart: Given the very serious position of refugees from the military dictatorship of Latin America, particularly Chile and Argentina, will the Minister inform the House of the legal advice given to the Government about the recent statement of the United Nations High Commission for Refugees? Will he seek, in the light of that, to change the Home Secretary's decision to end the special programme for refugees from Latin America?

Mr. Hurd: I do not think that that arises specifically from the question on the Order Paper.
We are honouring existing commitments with Chile, inherited from the previous Administration, on scholarships for refugee students. The matter of human rights is part, but can only be part, of the considerations which we must now consider before deciding on the distribution of our aid programme.

Mr. Brocklebank-Fowler: Although I recognise the need for cuts in the aid programme, is my hon. Friend aware that many Government supporters are concerned lest the cuts should not form part of a coherent aid strategy? Will he ensure that his Department only makes cuts which will not do long-term damage to the effectiveness of the aid programme?

Mr. Hurd: We had to make a contribution this year, out of the promised aid programme, towards the Government's search for economies. That was absolutely right and inevitable. Now we must go on, exactly as my hon. Friend indicated, to look searchingly at the future level of the aid programme, its distribution and the principles which should be applied. That is the purpose of the review which is now taking place.

Mr. Ashley: Has the Minister received any representations from War on Want about the damage being done in these countries to which we are giving aid by the unscrupulous advertising of powdered baby milk with the consequent death and disease which results? If he has, what does he propose to do about it?

Mr. Hurd: I think that I have written to the right hon. Gentleman on this subject in the last few days. This is a complicated problem, which we are looking at. If the hon. Gentleman wants further

information, perhaps he will table a specific question.

Mr. Ian Lloyd: Will the human rights which my hon. Friend is reviewing in the context of the general review of the aid programme include the human rights of British subjects and institutions that have been expropriated without compensation? Will he ensure that, in future, where massive British aid is going to any country which has adopted a policy of this kind, such aid has as its first claim the compensation of British citizens and institutions?

Mr. Hurd: Different situations need different handling. However, I agree that, when deciding on the distribution of our aid programme, the treatment which a possible recipient country accords to British individuals and British interests is certainly an important factor.

Mr. John Grant: What representations have the Government made to recipients of overseas aid where they believe that there has been a violation of human rights?

Mr. Hurd: We do not believe that it is sensible to generalise too much about human rights. We believe that it is the job of the British Government to try to make the world a slightly more decent and humane place. Where there are flagrant violations, we consider in each case how best we can improve the situation. We have done this in the case of several Eastern European countries and in the case of several countries in the developing world.

Oral Answers to Questions — FOREIGN AND COMMONWEALTH AFFAIRS QUESTIONS

Mr. Farr: On a point of order, Mr. Speaker. I wonder whether it would be appropriate now to raise with you the format of Foreign and Commonwealth Office Ministers Question Time and, in particular, how it is broken up between the Foreign and Commonwealth Office in general, overseas development matters, and the EEC. The way that matters worked out today was that EEC questions got nearly two minutes each, overseas development questions got only about half a minute each, and questions relating to the whole of the rest of the world, including Rhodesia, got only about 35


seconds each. There seems to be a strange imbalance, which is not satisfactory.

Mr. Speaker: The hon. Gentleman has raised a matter that I know concerns the House very much. I am the servant of the House. I have to follow the Order Paper. However, this is a matter that hon. Members ought to pursue through the usual channels that are available to them.

Mr. Alexander W. Lyon: On a point of order, Mr. Speaker. Since the reorganisation of the ODM inside the Foreign Office, we understand that we table questions to the Lord Privy Seal, but I took it that the answer would still come from the Minister for Overseas Development. Has it been intimated to you, Mr. Speaker, that the reason why the Minister for Overseas Development has not replied today is a change of procedure, or simply that he is away today?

Mr. Speaker: Perhaps I may tell the House that I have taken points of order before the statement as a most exceptional course. It is very unfair when there is a statement to be made. I say that in order that this is not taken as a precedent.
Secondly, which Minister answers questions is, as the hon. Gentleman knows, not my responsibility.

EUROPEAN COMMUNITY (COUNCIL OF MINISTERS' MEETINGS)

Mr. Spearing: On a point of order, Mr. Speaker. I think that it will be within your recollection and that of the House that when EEC statements were made by the previous Government, by Mr. Frank Judd, he always prefaced his statements by saying that the business statement had been deposited in the Vote Office a number of days previously. The business statement is not now in the Vote Office. I hope that it will be possible for it to be there on future occasions, and I hope that you will see to it that it will be there.

The Lord Privy Seal (Sir Ian Gilmour): Further to that point of order, Mr. Speaker. One hundred copies were deposited at 1 o'clock yesterday.

Mr. Leighton: On a point of order, Mr. Speaker. I went to the Vote Office and asked for a copy of the statement. I was told that none was available. I was directed to the Government Whips' Office. I talked to a Whip there and he said that it is not the practice to issue such statements.

Sir I. Gilmour: Perhaps I may say that I think that there must have been a slip-up in the Vote Office. The Minister of State responsible for overseas aid is abroad.
With your permission, Mr. Speaker, I will make a statement about the main business to be taken by Ministers of the European Community during December. The written forecast of business was deposited in the House on Tuesday 27 November. At present, eight meetings of the Council of Ministers are proposed for December.
The Fisheries Council will meet on 3 and 4 December and is expected to discuss the report of the high-level group of officials and third country agreements.
The Transport Council will meet on 6 December and is expected to discuss Commission reports on the economic and financial situation of the railways and on railway integration; proposals on Community and bilateral road haulage quotas and the liberalisation of own-account road goods transport. The Council is also expected to consider a Commission memorandum on air transport; consultation


procedures on civil aviation matters; the draft directive on aircraft noise, and amendments to the tanker safety directive.
The Agriculture Council will meet on 10 and 11 December and is expected to discuss the common organisation of the markets in sheepmeat, wine, potatoes and ethyl alcohol. The Council may also consider aspects of policy regarding agricultural structures; the proposed revision of the sugar market; surpluses in the dairy sector; production refunds for the starch industry; beef import arrangements for 1980, and subsidies paid on Italian imports of feed grain.
The Finance Council will meet on 17 December and will discuss such follow-up action as is necessary in the light of decisions reached at the European Council. Ministers will also consider the Commission's draft annual report on the economic situation in the Community for 1979–80 and its annual economic review for 1979–80.
The Environment Council will meet on 17 December and is expected to discuss the proposal to reduce Community use of chlorofluorocarbons; the draft directive on air quality standards for lead and the draft directive setting health protection standards for levels of sulphur dioxide and smoke in the atmosphere.
There is also expected to be a progress report on the draft proposals setting emission standards and quality objectives for the pesticides aldrin, dieldrin and endrin.
The Foreign Affairs Council will meet on 18 December and will review any need for follow-up action arising from the European Council. Ministers are also expected to consider Community measures to combat the crisis in the iron and steel industry in 1980; arrangements for the next phase of the EEC/Cyprus association agreement; proposals for the annual review of Community staff pay and a Commission report on the outcome of the negotiations with the Council for Mutual Economic Aid. In addition, the Council is expected to discuss proposals on the co-ordination of training and mutual recognition of qualifications of midwives and Community imports of synthetic textiles from the United States. Progress in the Portuguese accession negotiations is likely to be discussed in the margins of the Council.
The Research Council will meet on 20 December and is expected to resume discussion of the proposed Community research programmes on fusion and biology-health protection and also the programme of the Community's joint research centre.
The Energy Council is expected to meet in the first half of December on a date still to be arranged. No firm agenda has been agreed, but the Council may consider proposals to assist coal production and consumption in the Community and member States' oil import targets for 1980.

Mr. Shore: I am sure that we all want to thank the Lord Privy Seal for that fascinating and illuminating account of the manifold activities of the European Community during the coming month. However, first, assuming that there is no rearrangement of these Councils after the Dublin summit, and assuming that British Ministers will still be wishing to attend these Councils, may I particularly draw the right hon. Gentleman's attention to the importance of the Finance Council on 17 December, at which Ministers are to discuss the annual report on the economic situation in the Community?
May I particularly draw to the right hon. Gentleman's attention—I hope that he will draw this to the attention of his right hon. and learned Friend the Chancellor—the quite appalling forecast for the whole of the EEC's economic performance in the coming year, in which unemployment is expected to rise to record levels, and in which inflation, again, along with very high interest rate policies, is expected to be at a very nearly record level?
Can the right hon. Gentleman somehow introduce into this important body some serious consideration of ways in which we can prevent ourselves, collectively, from being forced to deflate our economy and to increase unemployment every time there is an increase in Arab oil prices? I hope that the right hon. Gentleman will put these things very strongly to his right hon. and learned Friend the Chancellor.

Sir I. Gilmour: I agree with the right hon. Gentleman that it was not an outstandingly fascinating statement. However, he will also agree that it is he who


is always pressing me to make the statement orally. I think that there are quite a lot of advantages to its being made in a written form. I shall certainly draw what the right hon. Gentleman has said to the attention of my right hon. and learned Friend the Chancellor—who, in fact, heard what he said.

Mr. Hill: Will my right hon. Friend tell the Minister who will be attending in Brussels on transport matters that it is nonsense that when we are coming up to the seventh anniversary of having been a member of the European Community, it is still discussing lorry quotas? Is it not a fact that the British transport industry should be allowed to have complete freedom to traverse the roads of Europe? Is it not nonsense to have the almost quarterly quota figure for British transport?

Sir I. Gilmour: There is a great deal in what my hon. Friend says. I will draw the attention of the Minister of Transport to his remarks.

Mr. Cryer: The Lord Privy Seal mentioned the Finance Ministers' meeting on 17 December. Will the Ministers take any action on the consequences of the Dublin summit? Will the Lord Privy Seal say, for example, what happens if we do not get £1,000 million wiped off our subscription? What will the Ministers do, when discussing the annual economic review, to stop the West Riding wool textile industry bleeding to death? There has been total inertia by the EEC over action on such matters as outward processing. There is great concern in the industry. Will the case be pressed strongly?

Sir I. Gilmour: I will look into the second part of the hon. Gentleman's question. As he may know, there have been various developments. On the first part, I cannot say whether the Finance Council will discuss the consequences of the Dublin meeting until I know what are those consequences.

Mr. John H. Osborn: Will my right hon. Friend persuade the Council to discuss urgent matters to a greater extent and to give them priority? Is it not a fact that the supply of energy resources to Europe should be a major priority if supplies fail from OPEC and other

sources? Will my right hon. Friend, on transport policy, encourage our representatives to discuss the extent to which the Community has an important role to play in determining the future of air traffic control and Euro-control?

Sir I. Gilmour: The last point that my hon. Friend mentioned will be coming up fairly soon for discussion. As I said earlier, on energy, we already export 20 per cent. of our oil production to our Community partners. My hon. Friend will appreciate that our production is not great enough to supply the whole of Europe if there was a breakdown in the Middle East.

Mr. Russell Johnston: In view of the disgracefully biased, tendentious and provocative remarks of the right hon. Member for Stepney and Poplar (Mr. Shore), is the Lord Privy Seal aware that all tests of public opinion in this country have shown substantial majorities in favour of proportional representation? Given that the official position is—as he has described—that the Council must await proposals on a uniform structure from the Parliament, is it not sensible for the Council to make preparations in advance? Will he so propose?

Sir I. Gilmour: That is as it may be. I think I can be fairly confident that almost the only matter that will definitely not be discussed next month is proportional representation.

Mr. J. Enoch Powell: What are these margins of the Council in which it is proposed to discuss the Portuguese accession? Is this a new Community institution? Will what transpires in the margins of the Council be reported to this House?

Sir I. Gilmour: It is not a new institution. It is similar to references to "behind the Chair" or "the usual channels", or matters discussed at lunch. All it means is "not on the Floor of the House". Whether it is reported to the House depends on what is decided in the margins.

Sir Anthony Hoyle: Will my right hon. Friend ask his right hon. Friend who is attending a meeting to discuss aircraft noise to press on his fellow Ministers the need for a joint initiative in attaining a reduction in aircraft noise around major international airports in the Community,


such as Heathrow? The ever-increasing amount of noise is causing a great deal of worry to residents in all parts of the Community.

Sir I. Gilmour: I should declare an interest. I share entirely the views expressed by my hon. Friend. He knows the difficulties. We will do what we can.

Mr. Mark Hughes: Will the right hon. Gentleman take note that the Scrutiny Committee has already requested a debate in the House on many of these subjects? It would be wicked for Ministers to take a decision before those debates have taken place.

Sir I. Gilmour: As the hon. Gentleman knows, we would not dream of doing anything so remotely wicked.

Mr. Rost: May we hope that when the Energy Ministers meet next month there will be real progress on a more constructive basis for moving faster towards self-sufficiency in oil in Europe, in view of the political and strategic threats that may disrupt the whole Western economy if progress at a faster rate than the 5 per cent. reduction at present proposed is not achieved?

Sir I. Gilmour: My hon. Friend puts before the House what would be a very desirable objective. I see no possibility of its being attained in the immediate future.

Mr. Dalyell: Since, in his first innings, at Question Time today, the Lord Privy Seal was bowled middle stump by my hon. Friend the Member for Waltham Forest (Mr. Deakins), on the issue of the powers of the European Parliament, would he like to answer, in his second innings, the question that was put to him? Do the Government fundamentally believe that the powers of the Assembly or Parliament should be increased or decreased? This is a matter of great consequence.

Sir I. Gilmour: If I was bowled, it is merely because the hon. Gentleman's question, with all respect, did not admit of a sensible answer. There was no way that it could be answered sensibly.

Mr. Russell Kerr: Bad umpiring.

Sir I. Gilmour: Bad umpiring, as the hon. Gentleman says. I give the same answer that I gave to the hon. Member for Inverness (Mr. Johnston). The

powers of the European Parliament was not one of the subjects that I talked about in my long statement. As far as I know, it will not be discussed in the coming month.

Mr. Grieve: Will my right hon. Friend seek to ensure that one of the subjects that could be profitably discussed by the Transport Ministers is the Channel tunnel and the contribution that the Community might make to a project that would be of enormous advantage to this country and, I believe, to Europe as a whole.

Sir I. Gilmour: As my hon. and learned Friend knows, my right hon. Friend the Minister of Transport is considering this matter now.

Mr. Kaufman: With regard to the discussion on iron and steel, will the right hon. Gentleman give an assurance that the Government will not agree to any weakening of the Davignon anti-crisis measures? On shipbuilding, will the right hon. Gentleman, in view of the extremely unsatisfactory outcome of the discussion on scrap-and-build at the ministerial Council on 20 November, ask for that subject to be inserted on the Foreign Ministers' Council agenda for next month? Will the Government, instead of simply commenting on and reacting to other countries' proposals, put forward and press positive and urgent proposals to help an industry in grave crisis?

Sir I. Gilmour: I will consider putting the matter on the agenda. I can make no promises. The right hon. Gentleman knows the attitude that we have taken on steel aids over the last few months. I see no reason why that action should change.

Mr. Speaker: Order. I must inform the House that I have an exceedingly long list of hon. Members who have indicated to me that they hope to take part in the major debate later. They will not all be able to do so. I am telling the House now. This is bound to control the number of hon. Members who are called to put questions. If questions are brief, I will call all of them.

Mr. Sproat: With regard to the fisheries meeting, will my right hon. Friend ask his right hon. Friend to find out from the French Government what


subsidy that Government are paying to the French fishing industry for fuel costs?

Sir I. Gilmour: Yes.

Mr. Straw: Does the right hon. Gentleman agree that in the event of failure at the Dublin summit one of the sanctions that the Government must take is not to attend any of these meetings?

Sir I. Gilmour: No, Sir.

Dr. David Clark: With regard to the shipbuilding scrap-and-build policy, is the right hon. Gentleman aware that the Ministers responsible for that area have consistently and repeatedly, from the Dispatch Box, made a commitment to the scheme? Will the right hon. Gentleman appreciate that thousands of jobs are at stake? Will he insist that the matter is put on the agenda at the meeting in December?

Sir I. Gilmour: I am sure that what the hon. Gentleman says about my right hon. and hon. Friends is true. I cannot give an absolute commitment until I have consulted them.

Mr. Spearing: While thanking the Lord Privy Seal for attempting the usual arrangements, may I ask him whether he is aware that the Council of Ministers has promoted a regulation which will enable a £1,000 million fund to be made available for the development of atomic power and research? Can he say at which Council meeting this will be discussed? Will he also assure the House that, as the Scrutiny Committee has recommended a debate, the matter will be debated here before it is discussed and decided at the appropriate Council?

Sir I. Gilmour: I will give the second assurance, since I think that it relates to a decision rather than to a debate. I assume that the answer to the first question is the Energy Council.

Mr. Foulkes: Will the right hon. Gentleman ask the Minister of Transport to seek the advice of the German Minister of Transport when he attends the Transport Council on how the latter can persuade his Government to give to the railways a subsidy nine times the size

of the subsidy in the United Kingdom? Will he see that his right hon. Friend brings back that advice to the Government to ensure that British Rail does not have to consider the options of rail closures which it seems still to be considering, in spite of the denial by the Minister of Transport earlier this month?

Sir I. Gilmour: I am sure that my right hon. Friend is always ready and willing both to talk and to listen to his German counterpart.

Mr. Robert Hughes: Will the right hon. Gentleman take the initiative at the Council of Ministers to ensure that the inequitable agreement with the third party of the Farces is rediscussed in order to protect the Aberdeen fishing industry? Will he also seriously consider beginning a discussion on the multi-fibre arrangement on which a great deal needs to be done to make sure that it is tightened up?

Sir I. Gilmour: I will draw what the hon. Gentleman said in the first part of his question to the attention of my right hon. Friend the Minister of Agriculture for the meeting which takes place next week.

Mr. Leighton: Since the right hon. Gentleman said that the next meeting of Agriculture Ministers is to discuss what I think he called the services in the dairy sector, and, bearing in mind the fact that the Community is currently spending £3,000 million on disposing of surplus dairy products, will he assure the House that he will protect the British doorstep milk delivery system and that to that end the Government will remain adamant in keeping out French ultraheat-treated milk?

Sir I. Gilmour: I can assure the hon. Gentleman and the House that the Government are very well disposed towards the present milk delivery system and that they have no plans to see it altered.

Mr. Shore: In view of the right hon. Gentleman's remarks in answer to my opening question, may I be allowed to assure him that we value these monthly statements on EEC business and would certainly wish them to continue, and that our scepticism relates far more to the


nature of the business than to the value of the oral statement?

BALLOT FOR NOTICES OF MOTIONS FOR FRIDAY 14 DECEMBER

Members successful in the ballot were:

Mr. Tony Speller.

Mr. George Foulkes.

Mr. Ian Lang.

ECONOMIC POLICY

Mr. Speaker: Before I call the Chancellor of the Exchequer, I underline to the House the fact that it is an impossible task to call every hon. Member who will seek to catch my eye or those of the Deputy Speakers. I urge right hon. and hon. Members not to come to the Chair to see whether they are likely to be called. I know that they will be too interested in the debate to want to leave the Chamber while it is on, but it will be a great consideration for those of us in the Chair if hon. Members do not come to us to find out whether they will be called.

The Chancellor of the Exchequer (Sir Geoffrey Howe): I beg to move,
That this House supports the economic policies of Her Majesty's Government.
At the outset of what I think is our first major economic debate since the Budget—

Mr. Russell Kerr: It will not be the last one.

Sir G. Howe: I dare say that there will be a number of such debates over the next few years, and the hon. Member will have the opportunity to take part in them.
I welcome this opportunity to set in perspective the measures announced on 15 November. The immediate reason for the action that I took then was the fact that it had become clear that in the most recent period the underlying growth of sterling M3 was beyond the target rate of 7 to 11 per cent. that I had announced at the time of the Budget. There were two principal causes for that—the higher than expected public sector borrowing requirement in the first half of the year, and the persistently high level of bank lending.
The House will remember that the PSBR had always been expected to be high in the first half of the year because of the timing of the Budget measures, but the delays in collection of telephone bills and value added tax, both caused by industrial disputes, helped to increase it in that period by up to £1,000 million. In addition, the monthly growth of bank advances in each of the three months to October had averaged about £700 million.
In those circumstances, it was clearly essential to take the action that I took to


re-establish and maintain firm control over monetary and fiscal policy. Of course, the increase in minimum lending rate was no more welcome to the Government than to anybody else, but as soon as it became clear that such measures were needed we did not hesitate to act.
The market judgment of those measures has been clear. Confidence in the gilt-edged market was immediately restored at the new higher level of interest rates and substantial sales of gilts were made, including the whole of one new issue, of £1 billion. Since then, steady but smaller-scale demand for gilts has persisted, including tenders for today's new issue. This and the part payments due from the stocks sold last month have secured a substantial contribution to funding the borrowing requirement.
The measures, as I said at the time, were designed to maintain the Budget strategy. They were a necessary but manageable response to the situation, and I am confident that the House will agree that there was no alternative. Certainly it is worth remembering that the right hon. Member for Leeds, East (Mr. Healey) said on 9 November 1978:
If the Government were to … fail to take timely action when necessary and lose control of the money supply, the sufferings of the whole of the British people, whether mortgagors or not, would be infinitely more serious than suffering brought about by increases in mortgage rates".—[Official Report, 9 November 1978; Vol. 957, c. 1233.]
The immediate reasons for our action were, however, only a symptom of the more serious economic weaknesses which we had inherited. As I said in my Budget Statement, the rise in prices and wages was accelerating, output was flat, public spending was rising faster than the country could afford, monetary growth was excessive and the balance of payments was in substantial deficit. Indeed, the economic indicators that have become available since the Budget confirm that the judgment which I then pronounced dealt much too kindly with the shambles of our inheritance. The deterioration in the current balance of payments in the first half of this year is now seen to have been much greater than seemed likely even at the time of the Budget. Certainly it was far worse than the right hon. Member for Leeds, East anticipated when he published his last Industry Act forecast last autumn. He then predicted that the

current account would balance in the first half of this year. In the result, the deficit was almost £2,000 million.
That deficit reflects for the most part the very rapid rise in imports—a symptom of the economy's poor supply response to the pre-election consumer boom engineered by the right hon. Member. [HON. MEMBERS: "Oh."] The growing benefit—this is a figure to which Labour Members would do well to listen—from North Sea oil, worth approximately £7 billion to the current balance of payments this year, has been more than swallowed by the deficit on other transactions.

Mr. Denis Healey: Does not the right hon. and learned Gentleman agree that he has published a forecast in which he predicts that, under his policies, although output will fall by 2 per cent. and the revenue from North Sea oil will be a great deal higher, there will be a deficit on current account of £2 billion?

Sir G. Howe: That is a measure of the depth of the difficulties that we inherited from the right hon. Gentleman.

Mr. Healey: Do not keep blaming us.

Sir G. Howe: The right hon. Gentleman went on seeking to blame his misdeeds on the previous Administration during his entire time in the Treasury. Let me take one other example of the difficulties that he left us. The PSBR was larger, certainly, than his own estimate—that is, the one for last year. That may or may not be significant, but, more to the point, the PSBR last year—for 1978–79—was almost twice as much as it had been in the preceding year. It was that increase in the borrowing requirement, deliberately undertaken, which was the matter of real concern.
It has also become clear since June that the final outturn for last year's wage round was every bit as bad as we had feared. The last disastrous winter of the Labour Government left us with an increase in average earnings of 16½ per cent—far in excess of the growth in productivity. At the same time, world oil prices have risen more rapidly than seemed likely. Both those factors have combined with monetary growth, which was already too high. Thus, probably the most dismal feature of our inheritance was an inflation rate that was already into double figures and rising fast.
In the light of the depressing conditions that we inherited, the essential tasks that faced us were clear and remain the same today. First, we must concentrate on the defeat of inflation. Secondly, we must restore to the economy a balance between the resources that we produce and those that we consume. In particular, we must secure a balance between public and private spending. We must increase the ability of the economy to supply more goods and services.

Mr. Tony Marlow: When are the Government going to cut public expenditure? A host of people are outside the Palace of Westminster at present complaining about cuts, but, as I understand it, there has been an increase. For instance, there are 30,000 extra people doing jobs for local authorities. When do the Government plan to cut public expenditure so that the people waiting outside have something to come and talk about?

Sir G. Howe: I am grateful for my hon. Friend's support, but he must understand that the reduction in spending plans for the current year, which was already almost two months under way, to return to the level of spending in the last complete fiscal year was a substantial achievement. We shall be debating the public expenditure White Paper or Papers in due course.
There can, I hope, be no quarrel with the objectives that I have described, and there should not be room for argument about the central policies necessary to achieve them. In each case no sensible alternative is available, and certainly no sensible alternative is offered by the Opposition.

Mr. Robert Hughes: rose—

Sir G. Howe: I must get on a bit.
In the fight against inflation there is no alternative to strict control of the money supply, and that must be supported by a firm fiscal policy. That principle is widely accepted in this country and overseas.
Indeed, the right hon. Member for Leeds, East adopted monetary targets when he was Chancellor of the Exchequer. He also committed himself to limiting the size of the public sector borrowing requirement, and in that respect,

as in so many others, there is no alternative to the policies that we are following. I expect that the right hon. Gentleman will have no difficulty in agreeing to that. I was accordingly surprised to hear him in a radio interview on 12 November, three days before my announcement on 15 November, apparently expressing the opposite view. He was reported as saying that I should
be prepared to make good the shortfall in demand by more government spending or more tax cuts".
That is a remarkable statement and no doubt the right hon. Gentleman will explain it to the House. It was made at a time when there was manifest difficulty in coping with the amount of borrowing, and the right hon. Gentleman was urging an increase in expenditure. The House will certainly expect an explanation.

Mr. Healey: The right hon. and learned Gentleman made clear in the document that he published last week that he is planning for a substantial increase of about £1 billion in the public sector borrowing requirement next year. As I shall explain later, in my view that increase is too small.

Sir G. Howe: The right hon. Gentleman should look more closely at the forecast that we published last week. It was made crystal clear that it was not a forecast or plan for the outturn of public sector borrowing next year. Decisions about that have yet to be taken.
The House will notice that, as in the broadcast that I quoted, the right hon. Gentleman is urging us to increase public expenditure, and that is a remarkable prescription.
The measures that I announced on 15 November were necessary to implement the monetary and fiscal targets we set ourselves. The rolling forward of our present target range for the growth of sterling M3 to cover the 16 months from mid-June 1979 to mid-October 1980 will avoid building into the target for the new period the excess growth in the recent past, while allowing a reasonable period to offset that excess.
The advance payment of petroleum revenue tax will reduce the public sector borrowing requirement by £700 million this year, offsetting the effects of the Post Office dispute and delays to VAT receipts.


It will bring the estimated PSBR back to the Budget estimate of £8·3 billion.
Many people have expressed surprise at the fact that I did not take direct action to control specifically consumer credit lending. As I explained to my hon. Friend the Member for Ravensbourne (Mr. Hunt) on the day that I made my statement, there were a number of reasons for that.
First, consumer credit is a relatively small proportion of the total—16 per cent. of domestic lending by the clearers, including acceptances, and 12 per cent. of lending by all banks. Those figures include the amount outstanding on bank credit cards. Secondly, consumer credit lending has not been growing significantly faster than other forms of lending. For example, in the last year the amount of lending outstanding to persons by the clearers, other than for house purchase, grew by 28 per cent. Their total lending outstanding grew in the same period by 23 per cent., or 26 per cent. if acceptances are included. Thirdly, direct intervention in the working of any market will inevitably mean distortions as ways are found around the controls. If I acted to tighten hire-purchase controls or restrict credit card lending, there might be a temporary impact, but there are many other channels for credit to consumers and after a while there might be little continuing effect.
Uncomfortable though it is, the way to reduce the demand for credit is by means of interest rates. They bite equally on all forms of credit, including consumer credit. I should add that my decision to take no direct action last month on the growth of consumer credit did not mean that I was unconcerned by it. It is particularly important at a time of stringency within the total of bank lending that the needs of more important sectors are met first.
However, success in restraining monetary growth without relying on unacceptably high interest rates depends on continued efforts to limit Government borrowing. If we are to avoid putting excessive weight on monetary policy, as we must, we must follow fiscal policies that are consistent with our other objectives. I am surprised that the right hon. Gentleman, who apparently criticises me for putting

excessive weight on montary policies, should at the same time be prepared to urge, so he tells us, further expansion in public spending. No doubt he will explain that.

Mr. Jack Straw: Does the right hon. and learned Gentleman agree with the Financial Secretary that taxation might well have to increase next April? Will that be through increases in VAT or personal taxation?

Sir G. Howe: Even the hon. Gentleman will have to await my Budget before getting an answer to the second part of his question. As to the first part, it is plain, and there should be no misunderstanding about it, that if public sector spending continues to expand uncontrolled—and we are taking steps to control it—and if public sector pay continues to expand uncontrolled and at very high levels, the alternative of higher taxation will have to be faced. That is why it is important for people to recognise the need for responsibility in pay bargaining in the public as well as in the private sector.
If the private sector is not to face an excessively high tax burden of the kind that the hon. Member for Blackburn (Mr. Straw) referred to, public spending must be held firmly in check. That is no doubt why my predecessor, in his letter of intent to the International Monetary Fund in 1976, undertook to reduce the public sector borrowing requirement and, to that end, reduce the share of resources taken by public expenditure. It was a commendable undertaking. He cut public spending, but as soon as the IMF's back was turned promptly allowed it to rise again.
Between 1977–78 and the present year, 1979–80, the Labour Party planned to increase public spending by more than 8 per cent. That is a measure of the task to which we had to address ourselves, and about which my hon. Friend the Member for Northampton, North (Mr. Marlow) asked me a moment ago. The Opposition know that very well. The fact is that those spending plans for the current year could not have been sustained without a very large increase in taxation. Indeed, even with a large increase in taxes, those plans would still have had to be sharply cut, even by a Labour Government.
In view of the outlook for the level of total resources likely to be available in the economy, the previous Government's planned growth in public spending was totally unrealistic. It is high time for the Labour Party to make clear to the House and the country where it stands on that issue. Does it still stand by its spending plans made while in Government? The right hon. Member for Heywood and Royton (Mr. Barnett), whom we are always glad to see twinkling in his place, has the courage to admit that the plans made by the Government of which he was a member called for spending that was too high and which had to be reduced. At least before the election the right hon. Member for Leeds, East made the same admission.
On the other hand, the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), apparently speaking on behalf of the Shadow Cabinet in this place, criticised the Government in sentence after sentence and paragraph after paragraph for daring to tamper with any one of the previous Government's spending plans. Yet on Monday of this week that right hon. Gentleman led the attack on the present level of interest rates. He sustained that attack on high interest rates as only he can do without saying one word about the level of public expenditure.
The House is entitled to know the answer to some questions. Where does the Labour Party stand on these matters? If it is agreed—I am not sure whether it is or not—that economies in public spending are necessary, where would the Labour Party make those economies? Would it try to prevent the State from taking a rising share of output or not? If, on the other hand, the Labour Party opposes all economies, where does it suggest that the extra money will come from? Will Labour Members stand by their plans or not? If so, how would they find the money to pay for them? Those plans represent £3·5 billion in today's prices—another 8p on income tax, VAT at 20 per cent., or higher rates? Or is it to be all three?
The day will come for the Labour Party to begin offering the country some answers to those questions. Let there be no doubt about the present Government's position—

Mr. Michael Cocks: Stick-up.

Sir G. Howe: I understand the right hon. Gentleman's impatience. Perhaps he can encourage his right hon. and hon. Friends to answer some of the questions I have put.
Once again, there is no sensible alternative to the policies that we are following. The White Paper introduced by my right hon. Friend the Chief Secretary demonstrates our determination to curb public spending in the interests of firm fiscal policy. Moreover, there should be no doubt that our fiscal policy will be maintained consistently with our monetary stance. With that objective in view, we shall continue to keep all our policies under review, including our plans for public expenditure.

Mr. Peter Emery: If the major need for reducing public sector spending is accepted, is it not the case that, with the projected level of national production this year, the percentage of public expenditure as a percentage of gross national product is likely to rise? That indicates that the cuts in the next years will have to be even greater, however unpopular they may be, in order to get on top of the situation.

Sir G. Howe: I understand my hon. Friend's wisdom. We shall have to maintain pressure on public spending for the reason that he gives.
There are some who argue in these circumstances, as the saying goes, that monetarism by itself is not enough—as though monetarism by itself represents the totality of the Government's policy. Nothing could be further from the truth. Alongside the policies that I have been describing, it is, at least, equally important, as Labour Members will understand, that there should be realism and responsibility in pay bargaining. In the context of a firm control of the money supply, excessive pay settlements can only jeopardise output and employment. Once again, there is no alternative to that proposition.

Mr. Healey: The Government do not have firm control of the money supply.

Sir G. Howe: I am astonished that, if the right hon. Gentleman says that, he is urging me to expand public sector borrowing.
The Government do not intend to interfere in individual pay bargains. Companies and workers that conclude excessive pay deals must understand that we shall not print money to finance them next year. Employers who raise prices to cover the cost of excessive pay settlements will risk losing orders and pricing themselves out of the market. Together with their employees, they will be faced with the prospect of reducing their activities, with all that that implies for output, investment and employment.
That is why the outlook for private and public commerce and industry, as well as for the public services—including the employees and their families—depends so much on the response and behaviour of management, unions and employees and their approach to pay increases.
The Government will hold—as they must—cash limits on Government and local authority public expenditure. Those limits will be fixed in such a way as to accommodate reasonable and, some people would say, substantial pay increases. However, they will not be sufficient to finance fresh increases on the scale of those obtained during the lamentable last year of the previous Administration. If increases of that order are again demanded and obtained, public service employment will have to fall. The standards of public service will fall. We cannot afford to maintain public services at a cost which feeds inflation. Once again, there is no sensible or realistic alternative to that policy.

Dr. Jeremy Bray: Has the right hon. and learned Gentleman considered applying to the public sector the current cost-accounting principles he seeks to apply to the private sector? Has he read the conclusions that were drawn by the Bank of England, by Mr. Taylor and Mr. Threadgold, which suggest that there is a public sector surplus rather than a deficit?

Sir G. Howe: I have read that article with considerable interest.

Mr. Joel Barnett: The right hon. and learned Gentleman did not understand it.

Sir G. Howe: I confess that the article contains remarkable propositions, which require a great deal of consideration before building any policy on the conclusions. No doubt the hon. Member for Motherwell and Wishaw (Dr. Bray) will have the opportunity in due course to make a speech, to which I look forward.
In the same way, we shall be holding the external financing limits for the nationalised industries. Each industry will need to examine its costs with care and to judge, in the light of the possibility of improving performance, what pay increases can be afforded. Both sides must play a responsible part in that judgment. Our coal industry faces that responsibility now. Others, in their turn, will face the same problem. They must recognise the limits of what can be afforded within prices which their customers and the public at large will tolerate.
We shall hold the money supply that is available to finance the private sector. Once again, there is no alternative to that.

Mr. John Bruce-Gardyne: Before my right hon. and learned Friend leaves the subject of pay in the public sector, will he shed some light on what can be done with the mad Dr. Clegg, who is churning out recommendations for settlement which have no relationship with anything except, apparently, his own mind's eye? How will we relate those to cash controls in the public services? Should we not look at that matter urgently?

Sir G. Howe: My hon. Friend has raised an interesting and important point but, uncharacteristically, he overstates his case. The task to which the not mad Dr. Clegg is applying himself, together with his colleagues on the Commission, is an important one. It is difficult to reconcile conclusions based on comparability with the fact that limited cash is available. My hon. Friend will know that the Government admitted evidence to the Clegg Commission a few weeks ago drawing the Commission's attention to certain factors to which it should pay closer attention on the task on which it is engaged. I hope that there will be an opportunity to discuss that matter on another occasion.
There are signs, in that Commission as elsewhere, of growing understanding of the pressures which are developing on


output, prices and profits as costs continue to rise faster than the prospective growth of money supply.

Mr. Nick Budgen: rose—

Sir G. Howe: If my hon. Friend will forgive me, I shall not give way. I must press on.
It is for each firm and industry, with its unions and employees, to make a reasonable judgment of prospects. It is inevitable and right in a changing economy that there should be different increases in different industries, reflecting the differences in their position and performance. There is a real danger that too many will see the problem as one which affects others and not themselves. They will try to steal a brief advantage of a percentage point or two. Some may be lucky for a time. However, no one should doubt that, with the severity of the pressures which will grow if that takes place, difficulties could be widespread. Few will be unaffected.
There is room for argument about the pace at which we should be trying to reduce the rate of inflation. Some might argue that we have pitched our aims unrealistically high. Some might say that we should have aimed for a sharper and, perhaps, more severe reduction in the rate of inflation.
Once again, there is no practicable or realistic alternative to the course on which we are set.

Mr. Budgen: rose—

Sir G. Howe: Given responsible behaviour, that course should enable us to achieve the objective of reducing the rate of inflation with a minimum of disruption and unemployment.
Few people are now prepared to argue—in the light of the dismal experience of the last Administration, which was not the first of its kind—the case for an administered, or institutionalised, incomes policy. That makes it all the more vital for everybody involved in pay bargaining to have a clear understanding of the economic setting in which they must conduct that process.
The Government have made it clear that they want, by all available means, to foster understanding of economic reality by promoting a wider discussion of

economic objectives and remedies. We attach importance, therefore, to the work of the National Economic Development Council and to its industry committees on which representatives of management, unions and Government can, and do, work closely together.
I have taken the chair at five increasingly useful meetings of the NEDC. At the suggestion of the TUC and the CBI, we are to devote the whole of next Wednesday's council meeting to a discussion of economic prospects and policies. I believe that that is an important development in the regular work of the council and I hope that we shall be able to build on it.
The constructive nature of some of our discussions in the NEDC should do something to discourage those who like to believe that there are deep and unbridgeable divisions between this Government and the trade union movement. Of course, we have our differences, but this Government are no different from their predecessor in that respect. There is no point in pretending that differences do not exist, nor is there any point in attempting to conceal the wider areas of common ground which exist at the same time.
We are grateful to the CBI for helping to bring home to industry the message of the Government's fiscal and monetary policies. I warmly endorse the remarks made by Sir Ray Pennock at the recent CBI conference when he said:
The Government have tried to meet the legitimate request of industry—we now look to management to demonstrate a new confidence and dynamism.
I am equally glad to be able to agree with the TUC—in the face of our jointly perceived experiences of the difficulties of statutory incomes policies, pay norms and pay sanctions—that responsible collective bargaining is the only effective way forward.
There is no alternative—and I return again and again to this theme—to the policies we are pursuing. The TUC has recognised that. I quote from the TUC economic review for this year:
monetary factors cannot be ignored and the Government does have to ensure that the public sector demand for finance does not prevent industrial investment or dislocate financial markets.

Mr. Reg Race: Is it not now clear that the Government have a covert incomes policy in the public sector? Is it not the case that the cash limits which are being applied to local authorities, and which will be applied to other public sector services, constitute a covert incomes policy? As the hon. Member for Knutsford (Mr. BruceGardyne) argued a moment ago, does not the Government's evidence to the Clegg Commission change the nature of that Commission's remit so considerably that the impact of the Commission on public sector pay settlements will be substantial and mean that the 400,000 nurses and midwives and the 400,000 teachers will be undermined by the way in which the Government have—

Mr. Speaker: Order. The hon. Member was not called to speak. He was called to interrupt.

Sir G. Howe: I do not know whether the hon. Member for Wood Green (Mr. Race) will have another opportunity of making a speech. I answer only the first part of that formidable intervention by saying that to exchange such phrases as "covert incomes policy" is to misunderstand the business which we, or any other Government, must be engaged upon. There is a limit on the amount of funds available in the public sector for the payment of those employed in the public sector. That limit is set by the Government, or by local authorities, by reference to the amount that can be raised by rates or taxes. That is, and has been, a fact of life under successive Governments for hundreds of years. Only in recent times have people begun to describe that system as an overt or covert incomes policy. I describe it as a fact of life which springs from the fact that resources in the public sector are, and always must be, limited.

Mr. Budgen: rose—

Sir G. Howe: I want to go on. I emphasise that if we understand the realities of what we are about and respect each other's point of view, there is no reason why the TUC, the CBI and the Government should not set aside outstanding differences in pursuit of common objectives. That is the spirit in which my right hon. Friend the Secretary of State for Employment will shortly

bring before the House his proposals for reforms in industrial relations legislation. Those reforms are designed to correct the broad balance of power between employers and unions in collective bargaining. Most importantly, perhaps, they will correct the balance between militancy and moderation.
The disruption last winter of much-needed services—of which we have seen an unhappy echo in the last few days—and disruption to industrial production showed only too clearly how small groups, sometimes defying their own union leadership, can abuse the framework of industrial relations. That framework has been warped by the industrial relations legislation of the Labour Government.
Equally, employment protection legislation, though well intentioned, has, in all too many cases, reduced rather than increased the prospects of employment. The legislation we shall introduce will be designed to remedy some of the plainest defects in our industrial relations framework.
In the same way, our tax policies are directed towards encouraging, assisting and rewarding skill and success. Of course, I must give overriding priority to the need to keep borrowing down and the money supply under control. As and when resources become available, I intend to do more in the direction of fiscal reform. To that end, as I said in my Budget speech, I am reviewing the capital tax system. The haphazard accumulation of taxes, one on top of another, inhibits the risk-takers upon whom so much of our success depends.
I also want to encourage more employees to share in the success of their employing companies. It is important to encourage a far wider spread of profit-sharing schemes, and I am reviewing the possibilities.
I also wish to help small firms—the new and young businesses which will play such an important part in the future. The cuts that I have made in income tax and the changes that I hope in due course to make in capital taxes are what those businesses, in the long run, need most of all. I am also considering the possibility of identifying further areas where fiscal adjustments might be appropriate specifically to assist firms of that kind.
Most forecasters agree that the prospect for the year ahead is for some decline in output. Thereafter, however, the forecasts become increasingly divergent. It would be surprising if they did not in the light of some of the observations made by the right hon. Member for Leeds, East about the differences in forecasting. Of course, our policies will not immediately transform the prospect. The Government have always made it clear that their policies will take time to have their full effect. There are, however, solid reasons for hoping that the medium-term outlook will be brighter. The London Business School, for example, expects 1981 to be a better year. On current strategy, it looks for a steady improvement over the following years with firm growth in output and continuing falls in inflation.
I return to my initial theme. As I have tried to emphasise, there is no sensible or realistic alternative to the policies which the Government commend to the House and the nation. Moreover, they are the policies which have enabled other countries to create and to sustain economic success even in today's difficult conditions. Certainly there is no alternative whatever to our policies on offer from the Opposition Benches.
The Labour Party is deeply divided. There are those who privately agree with us but dare not admit it or only dare admit it once they are comfortably ensconced in another place, where they can speak with greater candour than they can in this House. The other group comprises those who favour what they are pleased to call an "alternative strategy". That seems to frighten the first group almost as much as it seems to frighten the nation. There is no love lost among the various fragments of the Labour party.
I examined the other day one of the first post-mortems on the last Government. It was entitled "What Went Wrong?" That booklet contains interesting contributions and comments on the last Labour Administration by great intellectual figures such as the hon. Members for Birkenhead (Mr. Field), Oldham, West (Mr. Meacher) and Vauxhall (Mr. Holland). The intellectual guru who appears to bring them together is a gentleman called Ken Coates, the intellectual

leader of the international workers' movement. Among many interesting observations, he said:
Like all such evoluttions, this reduction of alleged social democracy to its opposite offers a variety of unedifying spectacles. See, there goes Mr. Healey, pregnant with the whitewash bucket underneath that dirty mac, up the ladder by the barn-wall to touch up the slogans. 'Four legs good, two legs better' we now read, where once it said something about squeezing until the pips squeaked.
That is the affectionate verdict on the right hon. Member for Leeds, East. I commend the book to hon. Members.
One must recognise the truth about the Labour Party. It was written in a more solemn article by the former hon. Member for Ashfield, Mr. David Marquand, who said:
The gulf between socialists and social democrats is now the deepest in British politics … the socialist and social democratic positions are not merely different, but irreconcilably opposed …
To pretend, in this situation, that socialists and social democrats are all part of the same great Movement … is to live a lie.
That judgment is profoundly true. The country came to the same conclusion when it decided to despair of the Labour Party. That is one of the many reasons why I am confident that my right hon. and hon. Friends and I will be able to count on the support of the people for many years to come.

Mr. Denis Healey: I beg to move to leave out from "House" to the end of the Question and to add instead thereof:
'calls on Her Majesty's Government to recognise the failure of its present economic policies and to change them as quickly as possible'.
The House had the right to expect, and was curious to know, how the Chancellor of the Exchequer would seek to justify breaking his election promises and failing to demonstrate even a glimmer of competence in the only sphere of economic policy for which he recognises any responsibility as Chancellor—monetary policy. It would need the talents of a magician to give any plausibility to such a defence, but as usual we heard just another imitation of Mr. Tommy Cooper.
I wish that the Chancellor had shown one glimmer at least of the style of Mr. Ken Coates, who enlivened the right hon. and learned Gentleman's closing moments. The failure of the


Government's economic policy stares them in the face. Wherever one looks, the landscape is littered with wrecked hopes and broken promises. As a result of Government policies, we already have the highest inflation in the Western world, apart from Italy, and the lowest growth in the Western world. We have the highest interest rates and the highest mortgage rates in British history.
In those rapturous days in August when giving an interview to the Wall Street Journal, the right hon. and learned Gentleman said:
The Thatcher Government has already shown that it is not waging war on the heartland of the private sector and that its tax changes are beginning to encourage the British entrepreneurial spirit. If we can go on delivering changes of that kind so that the medium term horizon is brighter than the foreground and the manager or entrepreneur constantly sees new heralds arriving from the Government camp saying 'something else out of the way boys' I think that we will sustain the changes in morale we need.
Let us examine the medium-term prospects. The Government themselves have described the prospect for next year in their forecast which was produced so late, so reluctantly and with so many disclaimers that no one would have guessed that it was Conservative Members who insisted that in future the Government should produce twice-yearly forecasts of this nature.
The Government forecast that output in Britain will fall by 2 per cent., that we shall see a massive increase in unemployment, that the retail price index will be 14 per cent. even at the end of next year, and that there will be a £2 million deficit on our balance of payments in spite of the massive contribution of about £9,000 million from North Sea oil. The original forecast before the days of delay was much worse than that. Even the forecast that I have just quoted was achieved only by fiddling the figures. The forecast assumes, for example, that the level of pay increases will fall throughout the pay round. If that is so, it will be the first pay round in which it has happened. The fact is that pay increases have been increasing steadily since the pay round began in August. The Economist correctly said that the going rate in the private sector is already between 20 and 25 per cent.
The right hon. and learned Gentleman took over an economy seven months ago when industrial output was at record levels, inflation was at only 10 per cent., and public expenditure and borrowing as a percentage of output—the new parameter which the right hon. and learned Gentleman likes to use himself—were well below the European average. Unemployment had been falling for 18 months and living standards had risen by nearly 8 per cent. on the previous year.
I shall examine what has gone wrong with the Government's policies and discuss how to put them right. When they took office seven months ago, the Government rightly fixed on two major objectives. The first objective was to bring down the rate of inflation and the second was to improve our industrial performance and the supply side of the economy. These were the right objectives and we support them.
However, the policies which the Government chose to achieve those objectives were inadequate, mistaken or self-contradictory. The Government have pursued their policies with exceptional incompetence. The Government aimed to reduce inflation by controlling the supply of money alone. They planned to improve industrial performance and the supply side of the economy by increasing incentives through cuts in income tax financed by increases in indirect tax and cuts in public expenditure, by withdrawing from intervention in the economy and leaving market forces to redistribute resources as efficiently as possible. I hope that the right hon. and learned Gentleman will agree that that is not an unfair description of the policies by which the Government hoped to achieve their objectives.
The policies have not worked, for several reasons. The right hon. and learned Gentleman rightly said that I believe—and I acted on this belief as Chancellor—that it is important to keep the growth in money broadly in line with the growth in gross domestic product in money terms. However, the right hon. and learned Gentleman will know now, if he did not know seven months ago, that to control the money supply is as difficult and as uncertain in its effects as it is to manage demand.
Nobody in the world yet knows how to define money. Nobody knows how to control it. The Chancellor suggested that one can control the money supply entirely through interest rates. For many months the United States and Britain have had the highest interest rates in their histories, allied with the highest lending by the private banking systems. More and more people are coming to the view on both sides of the Atlantic—I certainly am—that we shall have to revert to some direct control over bank lending as we had before the disastrous experiment in competition and credit control introduced by a previous Tory Chancellor. That may be essential if we are to have control of the money supply.
In addition to not knowing how to define money or how to control it, we do not know precisely how changes in money supply affect the economy and the time lag involved. Most people believe that the time lag between a change in monetary growth and change in the real economy is between one year and two years. We do not know, however, how much a change in monetary growth is reflected in output and how much in prices. The best study that I have seen on this was of the United States' attempt to reduce inflation entirely by monetary control in 1974–75. The study showed a loss of 90 cents of output for every 10 cents gained in prices. To control inflation by controlling money supply alone can be done only at an absolutely horrifying cost in both output and jobs.
The whole lesson of experience in this as in other countries is that inflation cannot be reduced and the economy run correctly without two weapons in the armoury besides monetary control. First, there must be a degree of demand management to prevent a gross under-use of industrial capacity. That means that one must be prepared to let the public sector borrowing requirement rise when the use of capacity is falling. Second, a policy for pay must be agreed with the trade unions.
If one tries to control pay, as the Government are seeking, by controlling money supply alone, one will fail. We know from experience under this Government that most employers would rather face the risk of bankruptcy in six months' time than the certainty of it tomorrow. Employers will pay up, cut

their profit margins and investment and raise their prices rather than face the risk of a damaging strike which would put them entirely out of action. The employee, for his part, rarely risks the loss of his own job if he goes for and secures an excessive pay rise.
A reduction in the labour force in most businesses is carried through natural wastage. An excessive pay rise, therefore, leaves the school leaver out of work and looking for a job rather than the man who gets the rise. In any case, the redundancy payment for workers who lose their jobs is usually sufficiently attractive as to give unemployment in the short run very few horrors for them.
The Government must face these facts. They are illustrated by what has been happening on the wage front in the past six months. I tell the Chancellor, as I have told my friends in the trade union movement, that nothing can justify wage increases at the levels now being demanded and achieved. Those increases will not lead to increases in real earnings. However, the Government cannot expect working men to stand by as Government policy increases the cost of living by 6 or 10 per cent., as it is doing without their seeking, however hopelessly, to make good the fall in their living standards by increases in earnings.
That was the central error made by the Government when the right hon. and learned Gentleman began his career as Chancellor. He increased the retail price index by 6 per cent. in the Budget. Higher VAT accounted for 4 per cent. of that, and increased public sector charges of one sort or another provided the remaining 2 per cent. Since then the Chancellor has added 1 per cent. through the rise in mortgage rates and another 1 per cent.—according to the Chief Secretary—through the new public expenditure cuts announced a fortnight ago. I suspect that the increase in the cost of living will be far more than the 1 per cent. suggested by the right hon. Gentleman, but we shall discuss that matter in more detail next Wednesday.
It is inevitable that, however irrational it may seem, working people faced with a Government who deliberately increase their cost of living and cut their living standards on this scale will seek recompense through pay increases. The Government's biggest mistake is to believe


that an enormous increase in the cost of living generated by Government action can be what the flibbertigibbet of the Treasury Bench, the Financial Secretary, has called "one for all", as if an increase in the cost of living generated by the Goverment will not lead to attempts at compensation by increases in earnings, which produce another increase in the cost of living later.
The Financial Secretary even went so far the other day as to say:
It is an absolute illusion that what happens to the RPI as a result of Government measures reflects the underlying rate of inflation.
It may not reflect it, but it adds to it. For the Government to believe that increases in prices are not increases in inflation is for them to fly in the face of common sense and the understanding of every citizen in this country.

Mr. Alexander W. Lyon: Has my right hon. Friend seen the Treasury answer given to my hon. Friend the Member for Grimsby (Mr. Mitchell) which charts the increases in inflation in relation to the increases in money supply over the last five years? They show a fairly close correlation until the last two years. The rise in inflation over the last nine months is not paralleled by any increase in the money supply of 18 months or two years ago.

Mr. Healey: I am grateful to my hon. Friend for that intervention. That is a point that I have made before and will gladly make again.
For the Chancellor to suggest that the current rate of inflation, partly created by the Government and partly through other causes, results from increases in the money supply over the last six or 12 months flies in the face of every element of monetarist theory. All Conservative Members know that to be true. It takes a year or two for increases in money supply to feed into inflation. That is why I was rightly able to charge the previous Conservative Government with the main responsibility for the inflation that we suffered in our first two years of office. The increases in money supply in 1972 and 1973 were reflected in price increases in 1974 and 1975.

Mr. Budgen: In that case, will the right hon. Gentleman give the proportion of

current inflation that he attributes to the increase in the money supply allowed by him about 18 months ago?

Mr. Healey: As Chancellor I kept the money supply under pretty tight control, but we overshot on more than one occasion by 2 or 3 per cent. So did the Germans. They never kept within 2 per cent. of their monetary targets, yet they have had the lowest inflation in the Western world. My point, however, is that we do not know, any more than the Chancellor knows, with any precision how changes in monetary growth are reflected in output, as opposed to prices, or on what time lag. To act as though we know is to assume knowledge that we do not have.
The other self-inflicted wound from which the Chancellor is still suffering is the ending of exchange control. That brought the pound down with a bump. The fall in its value in the two months up to a week or so ago will add 2 per cent. to the retail price index in about four months' time. That is in addition to all the other increases that I have mentioned. There has been some rise in the value of the pound since then, partly as a result of excessive interest rates and partly as a result of new worries about oil.
I put this point to the Chancellor in the hope that the Chief Secretary will comment on it when he replies to the debate. An element that I totally fail to understand in the forecast made by the Chancellor is his assumption that next year there will be a £2 billion current account deficit but the pound will remain stable. All the evidence of the last few years is that, with a floating exchange rate regime, exchange rates are determined primarily by current account balance of payments performance rather than by monetary growth. If that were not the case, Britain would not have seen a rising pound in the last seven months when on every parameter of economic performance, including monetary growth, it has been doing appallingly badly.
My suspicion—though I can feel no confidence that I am right in this, because these matters are not yet fully understood—is that if we have a balance of payments deficit next year of £2 billion and if, as some newspapers report, the Government are planning to run balance of payments


deficits for a period of years, their hopes of keeping the pound high, if that is what they wish to do, are bound to be frustrated. They will find the pound falling, inflation increasing and the need to reimpose exchange controls, as the Japanese are doing.
The second result of the abolition of exchange controls has been to make monetary control much more difficult. The right hon, and learned Gentleman should know by now, although he did not seem to understand when I put it to him at Question Time a fortnight ago, that domestic monetary control becomes irrelevant to those who can borrow from subsidiaries of British banks abroad. That is why Mr. Voleker in the United States has imposed reserve requirements on lending by American subsidiaries to American clients. All that the right hon, and learned Gentleman has done is ask the Governor to talk to the banks and ask them not to be naughty boys. A fat lot of good that did when the Government talked to the banks about cutting their lending to private borrowers in Britain.
The plain fact is that the abolition of exchange controls has blown a gaping hole in the Government's defences on the monetary side. The Government do not have the slightest idea so far what to do about it.
The third result of the abolition of exchange control is that, now the financial institutions in Britain are free to invest abroad as well as here, they are liable to increase the percentage of the assets that they hold in foreign currencies. At present it is 5 or 6 per cent. None of us can say whether it will rise to 8 per cent., 9 per cent., 10 per cent, or 11 per cent., or how fast it will rise to that sort of level. The one certain feature is that, if the Government want to maintain 50 per cent, of financial institution assets that are invested in British Government stock, they will have to maintain interest rates at a higher level than would have been necessary without the abolition of exchange controls.
The increase in interest rates a fortnight ago and the gilt stocks that were issued after that brought down the growth of money supply, but at what a cost. The right hon, and learned Gentleman may have seen an estimate made by an accountant in the Financial Times in the

past couple of days. He estimated that the Government have raised £1·89 billion in gilt sales since the increase of interest rates at a cost of £3·14 billion in interest and repayment. That implies that inflation will have to average 12 to 13 per cent, until 2003 AD if the sale of gilts in the past fortnight is not to be a crippling burden on the British taxpayer.
I shall be grateful if the Chief Secretary will confirm or deny that estimate. Confirmation will be especially agreeable from the right hon. Gentleman as he criticised the Labour Government so often for adopting expensive methods of financing their deficit through the issue of gilt stocks. That expense never came within miles of the load that the Chancellor has put on the taxpayer in the past fortnight.

Mr. R. B. Cant: Does my right hon. Friend agree with the accountant who wrote in the Financial Times that all future issues of gilt-edged stock should be indexed?

Mr. Healey: No. I considered that carefully when I was Chancellor. Indexing of gilts will make sense only if it is believed that inflation will stay indefinitely in double figures. To index gilts would be a confession that the fight against inflation had been given up. That is my personal opinion, although I know that it is not one that is unanimously shared in the City. There are fashionable trends. I have never believed that 1,000 lemmings cannot be wrong. I do not trust the wisdom of the markets. I have seen them so often lead Britain and other countries to disaster by following a fashion in too extreme a way for too long.
I turn to the supply side of the economy and industrial performance. The Government were relying on increasing incentives, although the Chief Secretary told us in the Budget debates that he did not believe that tax cuts would increase incentives. He said that they might lead people to play another round of golf instead. But the fact is that no tax cuts are left.
The Financial Times has calculated rightly that it is necessary to have between two and a half and three times average income, or to have an income that is derived almost entirely from investment, if we are to obtain any gain from


the Government's fiscal measures so far. Everybody receiving less than twice average earnings, which must be over 90 per cent, of the population, is losing as a result of the Government's measures. Those who are losing most are home buyers and large families.
The calculation of the Financial Times was made before the increases in the cost of living that are now in the pipeline become evident. There is to be a 20 per cent, increase in gas prices, a 20 per cent, increase in rail fares, which will be with us in five weeks and will be 25 per cent, for Conservative Party supporters in the commuter belt, and a 36 per cent, increase in colour television licence fees in the new year. The price of school meals will nearly double to 55p next summer. There will be whopping rent and rate increases next April. The Government have made it increasingly clear that there is no chance of any more cuts in income tax next year. There is not much incentive left.
What are the consequences of the Government's monetary policy and incentives on the supply side against the background that I have set out? The Government have set themselves a new monetary target, namely, that M3 should grow by between only 4 per cent, and 7 per cent, in the next 12 months. That is implied by maintaining the existing range of monetary growth to next October, given the fact that it has grown by about 17 per cent, in the first seven months. This is at a time when inflation, on the Government's account, will increase by well over 14 per cent. In my view it will increase by about 20 per cent. To try to hold monetary growth down to 4 per cent, or 7 per cent, when inflation is rising at anything up to five times that rate is a more viciously restrictive measure than any Government in the world have ever attempted. It will mean a cruel and vicious squeeze on business.

Mr. Budgen: rose—

Mr. Healey: No, I have already answered one question put by the hon. Gentleman. Perhaps I shall give way to him later. I enjoy dealing with him.
Business has already told us that we can look forward to a fall in manufacturing investment next year. During the

last two years of the Labour Administration, private manufacturing investment rose by 14 per cent, in volume each year. Investment is now falling—

Mr. Budgen: Will the right hon. Gentleman comment on the squeeze that he imposed on the money supply between 1974 and 1975, when the figures for M3 dropped from about 25 per cent, per annum to about 12 per cent, per annum?

Mr. Healey: Yes, exactly. I am glad that the hon. Gentleman has reminded us that it was 25 per cent, per annum when the Conservative Government were in office. When it fell to 12 per cent, per annum, that meant a substantial fall in output. We had that fall in output in 1974–75. However, because we had an incomes policy, we brought down the rate of price increase to 13 per cent, by the middle of 1976, which was an astounding achievement. A monetary policy that I admit was severely restrictive because of our inheritance in 1974–75 was moderately accommodating from the middle of 1976 onwards. The present Government do not look forward to any improvement of that nature.
If the Government adhere to their new monetary targets, interest rates will have to remain excessively high, at least right through next year. Some large firms may be able to escape the effect of that by paying their bills later and demanding payment earlier. Small firms that do not have that bargaining power will find the banks foreclosing on their loans. They will find themselves going bankrupt on a spectacular scale in the next 12 months. That is the inevitable implication in reality of the 2 per cent, fall in output that the Government have told us they expect.
From where will the improvement on the supply side come against that background? There is a collapse of investment, widespread bankruptcy and no prospect of demand either at home or abroad. Why does the Chancellor—or the London Business School, which now, provides him with a stream of gurus—believe that we can look forward to some improvement after two years of agony? Where will the improvement come from? The Government's policies will have wiped out large areas of our manufacturing industry. There will be no base left for recovery.
Our prospects are made worse by the international situation. For the next few years we will face continuing cuts in the output of oil and continuing increases in its real price. That may help the pound because Britain has North Sea oil. It will help our balance of payments because we are no longer net importers but net exporters of oil. However, it will be at the expense of further damage to our manufacturing industry.
The whole world faces the risk of a certain recession turning into a slump because so many Governments are trying to pursue policies such as those of the Conservative Party. All those Governments want to run a surplus and maintain a strong currency. There is already an interest rate war because the name of the game is now competitive appreciation instead of competitive depreciation.
As the world faces the risk of a slump, the Government are totally abandoning the pursuit of complementary policies achieved at the Bonn summit, which led to a closer moving together of economies at the beginning of this year than for five years. That is why the German Government have achieved a better performance this year.
The Government have totally abandoned any attempt to negotiate on the price and supply of oil between consumers and producers. They have chosen this moment to cool towards giving the IMF additional resources. However, they must know that the private banking system faces total collapse, partly as a result of recent incidents in Iran and also because of the increase in oil prices prior to September. That increase presents the non-oil developing countries with a deficit of £65 billion next year. The private banking system will be unable to finance that.
The United States dollar is the only world reserve currency. However, no real attempt has been made to replace it with another asset, although all countries are trying to diversify out of the dollar. Perhaps the Chancellor can deny something that I heard in Washington when I was last there, namely, that the Government have withdrawn support for the substitution account, which was the only sensible idea on the table as regards an alternative to the dollar as a reserve asset. I sincerely hope that that is not true. The German Government are now

enthusiastic supporters of the substitution account. I hope that we shall join the German and American Governments in making a success of that account.
The only initiative that the Government have taken in the international economic and financial field has been to try to get rid of the £1 billion that we are paying to the EEC. We strongly support that initiative.
Yesterday the Foreign Secretary cast doubt on the Government's resolution even in that regard. When the Chief Secretary presented the White Paper on public expenditure, he said that it was not realistic to assume that the Prime Minister would succeed in her objectives. What a wonderful send-off for the Prime Minister as she goes to Dublin! I hope that the Chief Secretary was able to explain during this morning's Cabinet meeting why—only a fortnight ago—he undermined the Prime Minister's negotiating position publicly in the House.

Mr. J. Enoch Powell: rose—

Mr. Healey: Yesterday the Financial Secretary voted against the proposal to increase the powers of the European Parliament over the Community budget. That proposal was supported by Conservative Members of the European Parliament. The Financial Secretary's decision infuriated the Italian Government, who are our only allies in this enterprise. I gather that he intended to mollify the French Government, from whom we are certain to get nothing.

The Chief Secretary to the Treasury (Mr. John Biffen): Is the right hon. Gentleman in favour of the European Assembly having increased powers?

Mr. Healey: If those increased powers will lead to the end of the grossly inequitable contribution that we pay, I am in favour of them.

Mr. J. Enoch Powell: The right hon. Gentleman has referred to the elimination of the £1,000 million net payment that this country makes to the EEC. He has regretted anything that might prevent that sum from being eliminated promptly. Is it the policy of the Opposition that any steps necessary to eliminate that sum should now be taken?

Mr. Healey: Indeed it is. We can discuss the necessary steps to be taken after the Prime Minister has come back, defeated, from the Dublin conference.
In dealing with the supply of the economy, with the international situation and with inflation, the Government face the total collapse of their policies. It will be a spectacular collapse. Their only response is to double and redouble on a busted flush. They try to solve the problem by maintaining discredited policies and apply those policies in an even more vicious fashion. It reminds me of those in the last world war who believed that we could win victory in Europe by strategic air power alone. Yet when that failed those same people demanded more and more resources, on the principle that one makes a desert and calls it peace.
As the economy slithers towards the precipice, the Government, instead of holding out a helping hand to draw it back, are delivering a sharp blow with the boot in the small of the back to send it tumbling over the precipice. Nothing that the Chancellor has said has caused me to change my mind. It is depressing that many Conservative hon. Members, including some in the Cabinet, know that what I am saying is true. The rest of the Cabinet—in a comfortable torpor—looks on at the monetarist monomaniacs. They are puzzled but acquiescent. In fact, they have become the Prime Minister's poodles and, in case Back Benchers get out of line, the Prime Minister has now re-established honours for political services. Maundy Gregory has been replaced by Maundy Maggie.

Mr. David Mellor: For the last half hour the right hon. Gentleman has been savaging the Chancellor like a dead sheep. Will he spend a few seconds telling us what he would do if he were still moistening the Government Front Bench?

Mr. Healey: I was about to do that.
I urge the Chancellor to drop the monomania that he has adopted in the monetarist field and to follow a mix of policies. That mix has been followed for years by successful Governments—including our own. I urge the Chancellor to accept the need for a higher public sector borrowing requirement when output is falling. I understand that the Chancellor is prepared to accept a public

sector borrowing requirement next year that would be £1 billion higher than this year. That is the implication of his forecast, if the public sector borrowing requirement is to be the same percentage of GDP—and GDP is falling by 2 per cent.
But, according to the London Business School—the Chancellor's source of wisdom—if output falls 2 per cent, next year, the next Budget will need to be deflationary to the extent of £1 billion or £2 billion if the Government are to achieve even the objective of a public sector borrowing requirement that is higher by only £1 billion.
I hope that we shall be given some indication of whether the Chacellor is planning in consequence further tax increases or public expenditure cuts in the next financial year. Certainly our debate next Wednesday will be a farce if the Government are secretly planning or, for all I know, already negotiating with departmental Ministers further spending cuts for next year on top of those that have already been announced to the House.
Above all, the Government must start talking to the trade union movement about all these issues and must try to develop with the movement a rational approach to economic policy as a whole and to pay in particular.

Mr. Budges: Bring back the social contract.

Mr. Healey: The Government will be doing that before long.
Mr. Len Murray offered an opportunity in a notable speech in Newcastle a few weeks ago and Sir John Boyd went further in a speech last week by suggesting the establishment of a council on pay questions. So far, the only response from the Government has been profoundly to antagonise the best friends of reason in the trade union movement by severely restricting the powers of the National Enterprise Board.
I greatly fear that, in spite of the surprising conversion in attitude demonstrated by the Chancellor in his closing words about the trade union movement—the ageing and doctrinaire Socialist trade union leaders, as the right hon, and learned Gentleman used to call them—he will find the atmosphere at next week's meeting seriously damaged by the Government's action on the NEB.
Everybody knows that the Government will have to talk to the trade unions. Must we lose another 12 months of deepening and unnecessary agony before the Government have the courage to admit their mistakes? Shall we have to suffer tens of thousands of bankruptcies, hundreds of thousands more thrown out of work and millions of miserable families seeing their mortgage rates increase simply becouse the imperious vanity of the Prime Minister prevents her from admitting that she can ever be wrong and delays the inevitable moment when she will follow the precedent set by her right hon. Friend the Member for Sid-cup (Mr. Heath)?

Mr. Edward du Cann: Perhaps the right hon. Member for Leeds, East (Mr. Healey) has forgotten that for a long period, until just a short time ago, he was Chancellor of the Exchequer. It was the judgment of the electorate in May that most of us would prefer to forget his period of office.
The mildest comment that I can make about the right hon. Gentleman's speech is that most of us accept that he is bound to make a partisan observation or 24—it certainly seemed like 24—but his judgments about the Government's policies are undeniably hasty. The right time for judgments may be six months or a year from now. They cannot be made now and it is absurd to try.
However, I agree with the right hon. Gentleman on some matters. His warning about the present level of income demands was courageous and timely. What he said about the indexing of gilt-edged stocks was also correct. That would be folly in the extreme, and I wonder why we do it for the pensions of civil servants and hon. Members, but I shall come to that matter later. I also agreed with the right hon. Gentleman's opinions expressed in the best part of his speech, before the knockabout at the end, when he referred to world conditions. Only a super-optimist would not be apprehensive about the world economic scene and the prospects for the British economy. They are indissolubly connected.
Mr. Walter Wriston gave a lecture at a banking seminar in Boston some years

ago which is not inappropriate to present circumstances. He said:
Things are so terrible now that even the future is not what it used to be.
The right hon. Member for Leeds, East is correct in saying that the world situation is grave and that it is as well for us to recognise that.
There are political instability, economic instability and the huge recent rise in commodity prices, which is having just as serious an effect on domestic prices as any increase in the rate of VAT. The right hon. Gentleman referred to the oil problems. There has also been the spectacular rise of our new trading competitors—the new Japans—and disruption caused by new trading arrangements, not least in the EEC, which may be right in the long term but which are causing great worries in the short term, particularly to agriculture, the greatest of our industries.
I do not know whether my right hon, and learned Friend the Chancellor will agree, but I have to say that sooner or later the House will have to consider whether it may not be right for us to afford certain of our industries some protection against competition that I regard as being increasingly theatening to the survival of our domestic industries.
Of my many concerns, I should like to emphasise most a matter on which the right hon. Member for Leeds, East touched, namely, the lack of leadership in economic matters in the free world. My remarks so far may be common ground between us all. The question for us to decide is what our attitude should be. I agree that it must be right for us to consider whether to take initiatives on a number of economic matters. I say no more than that, but the fact that leadership is desperately required by the free world is incontrovertible.
The short-term domestic prospects are, as the indicators show, gloomy. There is, therefore, all the more reason—and it is, to put it mildly, all the more timely—for us to be realistic in the assessments that we make of our situation. It is all the more urgent that we should be certain of our strategy and sure-footed in its execution. Let that be based, as my right hon, and learned Friend has recommended, on realism.
I most strongly support the aims that my right hon, and learned Friend has declared, particularly the Government's aim that our nation should realise its true potential. The matter that divides us fundamentally in the House is how that should be achieved.
I increasingly incline to the view that the usual political arguments between the two sides of the Chamber are becoming increasingly sterile and out of date. In debates about nationalisation, for example, all hon. Members—except the fanatics—are agreed that the mixed economy is here for all time. Our debates should be about how to spend what we have more wisely and how to increase our earnings.
I have four suggestions to make to my right hon, and learned Friend the Chancellor which I hope will find favour in his wise eyes. The first is that while his aim of stabilising Government expenditure is praiseworthy—and, as one who knows something about the difficulties of achieving that, I give him credit for what has already been achieved—the aim is inadequate.
I hope that my right hon, and learned Friend will feel that more can be done. I believe that much more must be done. I am sure that the scope is vast and that more can be achieved without damage to the social fabric. When we reduce expenditure, actual or potential, all too often we cut what is practical and valuable and very rarely what is superfluous. Yet it is the fat that badly needs to be cut and not the muscle.
Let me give an example of what I mean. I know that my right hon, and learned Friend, in the package of measures that he has introduced, has, in a sense, leant over backwards to try to avoid cutting what is practical. None the less, the future roads programme has been cut by about £200 million. That is to say, we have cut the work available to the construction industry in the private sector by that amount. Trunk roads expenditure is down by about 30 per cent, over the last six years in real terms. So this is not a first instalment. In my opinion, we spend far too little on roads in general. But whether that is an argument that pleases the House is not altogether relevant at present. Here is an additional

instalment in a long programme of cuts in the amount of money spent on road building.
So far as I am aware, we have not discharged one administrator in the Ministry of Transport. Over the years, as Opposition Members well know because this was their Government's policy decision, there have been massive cuts in defence expenditure, but we still have the same number of admirals, a huge number of civilians employed by the Services and the same number of people employed at Bath on ship design and so on.
We read of hospital wards and even hospitals being closed, but the desk brigade remains at full strength if not at full stretch. Administrators can hardly be expected to cut their own jobs. I say that they must be made to do so.

Mr. Robert Hughes: Is the right hon. Gentleman aware that the cost of the administration of the National Health Service is about 5 to 5·7 per cent, of the total cost, that the figure for Marks and Spencer is about 14 per cent, and I understand that for ICI it is even higher? Should we not ask the NHS to advise industry on how to cut its administrative costs?

Mr. du Cann: That comparison is irrelevant. I shall come back to the point made by the hon. Member for Aberdeen, North (Mr. Hughes) in a moment and give an answer to his observation.
I have in mind some words of Winston Churchill. They are words he expressed in 1944 and I think they are wholly appropriate today. He said then:
We must shorten the tail in order to sharpen the teeth.
I put it in a shorter sentence. I do not have Sir Winston's gift of language. I should like to see more doers in our society and fewer pen-pushers.
The Treasury cannot handle this matter alone. That is obvious. The Treasury is a most competent Department, but it does not have the resources available. Yet, as my right hon. Friend knows, much research has been done, the results of which are available to him and the House. For instance, there is the work done over the years by the Expenditure Committee and the Public Accounts Committee.
Turning to the point raised by the hon. Member for Aberdeen, North, the PAC reported to the House, a little more than a year ago, that in the 18 months following reorganisation administrative and clerical workers in the National Health Service increased by about 20 per cent. The middle and higher grades increased by about 30 per cent. The total is 100,000. That may represent, as the hon. Member for Aberdeen, North suggested, a mere 5 per cent, of the total cost, but I still say that that is far too many people. That increased number does not provide more hospitals, doctors or nurses. It does not deal with patients. In the context of increasing remuneration for workers in the Health Service—heaven knows, nurses are not overpaid—if we pay administrators more, for every person who receives an increase there will be one nurse fewer, fewer patients being treated, fewer facilities in the Health Service, and so on. As I remarked the other day in a public speech, a nurse in my constituency put it well when she said that the National Health Service needs more bedpans and fewer ballpoint pens.
The question my right hon, and learned Friend has to ask his colleagues in the Cabinet is a simple one. Is everything possible being done in every Department to reduce the fat? I do not believe that that is yet the case. Though I have mentioned only the National Health Service, I could have mentioned parallel examples, details of which are contained in the documentation already available to the House from almost every Department.
Parliament could play a constructive part in reducing expenditure. For example, there are almost 100,000 people employed in the Inland Revenue. Why? It is for one reason only, namely that we have an over-complex tax system. There is a huge number of people employed in offices of the Department of Health and Social Security throughout the land, dispersing benefits. The Select Committee reported to the House that those devoted clerks are quite unable, as often as not, to understand the rules and regulations because the system is so complex. If we were to simplify the tax and social security systems, there could be enormous savings in staff.
Let me quote one example in relation to local authorities. Why is it that it can cost, in one local authority area, four

times as much to provide a bed for an old person as it does in another? What studies are done to discover why there should be these disparities? What edicts or recommendations come from central Government to local authorities to encourage efficiency in administration? Undoubtedly the answer must be "Too few" at this moment. I hope that will change in future.
I am beginning to wonder whether it might not be a bad idea to reorganise the work of junior Ministers in the Government. Instead of constantly aping their superiors, being great deciders of policy, projecting themselves to the public and all the rest of it, why do we not give those junior Ministers no more than a purely financial responsibility? Somebody must take command and if the Treasury cannot do it, for reasons that we all know to be right and praiseworthy, we must set up organisations throughout the Ministries to do it. I recommend that it is a job that could be given to junior Ministers and their new title should be that of Financial Secretary.
The theme is simple. We must insist upon—and strongly support my right hon, and learned Friend in when he is able to get it—value for taxpayers' money. I believe that scope for further economy is substantial.
The right hon. Member for Leeds, East said a great deal about interest rates. He was right to do so. The record rise in interest rates is a direct consequence of our failure adequately to reduce Government expenditure. We all know that. Indeed, if we look back over the years we see that, inevitably, there has been a correlation between the public sector borrowing requirement and interest rates. When the PSBR is high, so, generally speaking, are interest rates. Why is that so? I believe that it is because the Chancellor of the Exchequer of the day and the authorities have to organise the market so that they can sell gilt-edged securities. That is the truth of the matter. It may just as well be stated plainly.
The damage to the economy of high interest rates is directly proportional to the length of time that they endure. But we should note that the time intervals between peak rates progressively shortens. R. A. Butler first altered bank rate in


1951, and looking back at those old days we can see that the interval between each peak rate is shorter than its predecessor. Interest rates are a blunt instrument. They may well penalise the profligate but they also hurt the enterprising. They make investment much more difficult, and that is particularly worrying these days.
When one considers that capital investment per worker in Japan and Germany is two or three times as great as it is in this country and, at the same time, productivity is also two or three times as great, one realises that any obstacle put in the way of investment is a failure of leadership on the part of the authorities and of this House.
Our interest rates are a severe damper on some forms of business activity. Boatbuilding is suffering particularly at present. I understood very well what the Chancellor was saying when he referred to the volume of bank borrowing and the methods of commanding this. However, I want to underline certain practical aspects of these matters. Those who borrow do not necessarily do so in order to be extravagant. Let us take the example of the farming industry. The total of farming borrowings is now no less than £2·46 billion. That has increased by no less than one-third during the past 12 months. Why has that happened? Because farming profits have been squeezed so hard.
Let us take the private sector of the steel industry as another example. I have the honour to be the chairman of a company which manufactures alloy steel. That company has a vastly increased overdraft. Why? Because trading has been very difficult in the context of the transport strike, the engineers' strike and the continuing troubles in British Leyland, Massey and Ford.
Borrowing is not altogether a matter for criticism or attack. Nor should it necessarily be made more difficult. Farming enterprises and many businesses must borrow in an inflationary and unstable economic situation in order to survive. I do not know what other hon. Members think, but I feel that there is something rather obscene about a financial system which pays a man more to buy Government debts and live in idleness than to own a factory. I hope that we shall

get our interest rates down as soon as we can and that never again shall we see them at their present levels.
I hope that my right hon, and learned Friend will consider it right to set up urgent studies—if he is not already engaged in them—to find new ways of financing what we hope will be a steadily reducing public sector borrowing requirement.
While applauding the reduction in direct taxation, I remain certain that the differential between the rewards for working and those for not working are too narrow in our society. We need further prompt progress in this regard. Of course, we hope that many people will respond to the general appeal that my right hon, and learned Friend made this afternoon to employers, trade unions and trade unionists. But, in the end, people will only do what suits them or what pays them. If we do not set up the situation accordingly, we do not have the right to expect our appeals to be heeded.
As the House has increasingly recognised, in practical terms the Government can exercise only limited influence over events. The power of the Government to direct events is far less than we would like to think. The Prime Minister put it rather well when she said:
Pennies do not fall from heaven; they have to be earned here on earth.
The Government have a great responsibility to establish a climate of opinion and they can do much in that regard.
My right hon, and learned Friend spoke of the need for realism. I come to the particular matters in his charge, and I must say that I was encouraged by some of his oblique comments on this subject. In commercial terms, all my life has been concerned with the establishment in practical ways of a property-owning democracy. I am proud to have pioneered the British unit trust industry in its modern form and certain innovations in the life assurance field. The ideals of Sir Anthony Eden have always appealed to me. I rejoice to see that 54 per cent, of homes are now owner-occupied. It is remarkable to reflect that housing now represents 35 per cent, of the total personal wealth in this country. Twenty years ago it was less than 20 per cent. There are many reasons for that,


but, in particular, people feel that a house is a good hedge against inflation and they receive tax concessions as well.
I am now coming to the opinion that comparatively too much money is going into housing and too little into industry. Some 43 per cent, of the adult population of this country have building society accounts, but only 7 per cent, have stocks or shares, including unit trusts. I want to see that proportion changed. I want to see the number of owners of industry very much increased. In that way we would associate the broad mass of the population with industrial prosperity. I truly believe that that is our only chance to establish a new dynamic in industry in this country. The use of fiscal incentives on a massive scale, if that is what the Chancellor chooses, would be absolutely justified, In fact, I would go even further and say that we badly need new enthusiasm for manufacturing industry. One of the measures we should take, apart from share ownership and the association of workers with the prosperity of their industries, is the abandonment of corporation tax for manufacturing industry. After all, it raises very little money. Why not demonstrate to the country and to the world that in Britain manufacturing industry is the pride upon which the future health of our nation depends in every sense?
We shall debate the White Paper in detail next week. I draw the attention of the House to Table 2, which shows public expenditure by programme between 1974–75 and 1980–81. All the figures are quoted at 1979 survey figures, so they are constant. In 1974–75 the total of programmes was £70 billion and in 1980–81 it is the same. The entry for social security—item No. 12—in 1974–75 shows an outturn of £14 billion or 20 per cent. The figure for 1980–81 as projected is just under £20 billion. In other words, the increase of the static total is between 20 and 30 per cent.
I am beginning to ask myself whether we can any longer afford indexation of social security payments. After all, 17 per cent, tax-free is a great incentive to people, and one cannot blame people in industry if they seek comparatively large wage increases in order to keep pace. I am not sure that we should not go for a

new form of indexation—perhaps a production or productivity index.
The reality is that we can afford in social security payments only what the nation earns. Sooner or later the House must face the problem, and I suggest that we come to a realisation sooner rather than later that the number of those drawing benefits, with changes in age patterns and so on, continues to grow while the number of earners continues to shrink. The consequences must be faced.
I end as I began. In this nation we are struggling for our economic survival. The outcome depends less on Governments than on our people's response to the lead that they are given. I believe that my right hon, and learned Friend and his colleagues have given a line lead. I hope that they will continue to do so, in the nation's interests.

Mr. J. Enoch Powell: At the beginning of his speech, and in a sense again at the end, the right hon. Member for Taunton (Mr. du Cann) said that we must be certain of our strategy and sure-footed in its execution. As to the Government's strategy, it could not have been more firmly set out than it was by the Chancellor of the Exchequer—I take this sentence for convenience—in his statement on 15 November:
Britain's future depends … on mastering inflation. That can only be done … if we bring the money supply under firm control, progressively reduce the rate of monetary growth over the years … The supposed alternatives to these policies are a delusion."—[Official Report, 15 November 1979; Vol. 973, c. 1515.]
I have waited a long time, a matter of 20 years or so, to hear those principles declared so clearly and firmly by a Government and made, at any rate initially, the basis of that Government's actions. If that had happened sooner, this country would have been spared an almost incomputable quantity of loss and injustice.
I want to offer my support and encouragement to the Government in maintaining that principle. They have a great fundamental difficulty to confront in doing so. That difficulty is the nature of the factors with which they are operating, for those factors are by their nature not capable of precise quantification, nor is


the causal relationship between them, certain though it is, capable of being precisely forecast or estimated.
The three factors are not in any doubt. I do not think that today any school of thought disputes them. They are, first, the size of the public sector borrowing requirement; secondly, the rate of growth of the supply of money; and, thirdly, the impact of these upon the value of money, as measured by the retail price index. Not one of those factors is capable of satisfactory measurement.
Even the public sector borrowing requirement is a total to which could be added some items which do not appear in it but which have similar economic effects; there is no known satisfactory measure of the supply of money; and as to inflation itself, the RPI, although we probably have nothing better, is not an exact measurement.
The same is true of the causal relationship between those three elements. We know that without a public sector borrowing requirement there can be no increase in the money supply; for it is the monetisation of debt which, in the modern monetary system, increases the supply of money. Yet we cannot say that any particular size of public sector borrowing requirement produces a given increase in the money supply. A large PSBR could even, in the extreme case, produce a nil increase in the money supply. So, while we know the fact that without Government borrowing there would be no increase in the money supply, we are not able to say that this particular 'Government borrowing will yield that particular increase in money supply.
When we come to the next part of the chain of cause and effect, we are in the same position. We know—this is not seriously disputed—that inflation is impossible without the precondition of an increase in the money supply, but the manner in which the one produces the other, the time lag, even the mechanism, is a matter of considerable obscurity and variation.
Reference has already been made by the hon. Member for York (Mr. Lyon), in an intervention in the speech of the right hon. Member for Leeds, East (Mr. Healey), to the extraordinarily interesting reply that the hon. Member for Grimsby

(Mr. Mitchell) obtained in a written answer on 14 November, when he invited the Treasury to set out quarter by quarter from 1968 to 1977 the growth in the money supply, M3, and the quarterly increase in the RPI two years later. There appeared no precise correlation, at that interval of two years, between the one column and the other; and I dare say that if the hon. Gentleman had not been so merciful to the Treasury and had asked it to draw up a similar table for intervals of one year, 18 months, two and a half years and three years, there would have been the same absence of precise correlation.
But there is no mistaking the pattern. There is no mistaking the fact that the pattern of growth of the money supply between 1970 and 1974 coincided two years later with the rise in inflation between 1972 and 1976, and that the subsequent fall in the money supply from 1974 to 1976 was accompanied by a fall, not arithmetically corresponding, in the rate of decline in the value of money two years later.
So, on the face of it, the hon. Gentleman's table revealed part of the story and suggested that after all there is something in the notion of a two-year time lag. But the clinching fact is one that did not appear in the table: if we take the hon. Gentleman's 10-year period as a whole, we find that the increase in the money supply was 191 per cent, and that the increase in the RPI over the same period was 194 per cent.
So, whatever may be the mysteries, the flexibilities, the unpredictabilities of the process whereby an increase in money supply works its way through into a fall in the value of money, into inflation, it does sooner or later work out. We surely reap in inflation what we sow in terms of growth in the money supply.

Mr. Robert Hughes: Will the right hon. Gentleman explain to a layman why the equation cannot be done the other way round, to show that it is the rate of inflation that causes the increase in the money supply?

Mr. Powell: Certainly. The reason is that there is no possible logical means of explaining it the other way round, of explaining how prices can rise without the money to pay the higher prices.


This is an irreversible process. The concatenation of cause and effect works one way; it does not work the other way. [Interruption.] I am sorry: it is as simple as that; but that underlying simplicity, upon which, of course, the Government's strategy rests, is masked by the time lag, by the lack of precise quantitative relationship over a particular period.
The whole thing is also made the more difficult by the fact that the price for reducing the rate of inflation has largely to be paid before the full reward is reaped in terms of a more stable money; for the reduction in the rate of increase in the money supply, long before the retail price index registers the final consequences, has had its effect in disruption of economic activity—disruption, because a given fall in the rate of inflation, say,, from 15 per cent. to 5 per cent. per annum, produces exactly the same disruption, alteration of the pattern of economic activity and attendant transitional unemployment, however it is brought about—even if it could be brought about by the burning of joss sticks.
The Government have therefore undertaken a policy which requires to be persevered with over a series of years and will levy its cost, which the whole nation has to bear for what has been ill done in the past, before the benefits become visible or are reaped.

Mr. Peter Tapsell: Although I should have thought that everything that the right hon. Gentleman has said about the theoretical operation of the money supply was incontrovertible, and although I cannot be any more specific than he about the time operation of other methods, does he at least agree it is probable that when control of the money supply is also supported by other measures the time lags will tend to be shorter and the economic price that will have to be paid will be less harsh?

Mr. Powell: I can only say, with the Chancellor of the Exchequer, that the supposed alternatives—and presumably this must logically apply equally to subsidiaries—are a delusion. They have so been proved: it has been proved that if we build up the money supply, we may seek as we please, either by preaching or by controls, to hold prices and wages down, but we shall fail.
However, the Government have one consolation. It is the consolation which I have just quoted. It is the consolation which I thought was reinforced by the speech the former Chancellor of the Exchequer, the right hon. Member for Leeds, East, made this afternoon. The Government's consolation—their fortification, if they require it, in the course upon which they have embarked—is that there is no alternative to it. Anyone who listened to the speech of the right hon. Gentleman would have realised that it was a sustained plea for a resumption of inflation. [HON. MEMBERS: "Resumption?"] I shall not quarrel over words: for higher inflation—for an increase in inflation. I will accept any formulation which the right hon. Gentleman's colleagues prefer. At any rate, it was a plea for inflation.
For what did the right hon. Gentleman say? He said that he wanted a higher public sector borrowing requirement. He did not mean a higher public sector borrowing requirement that would be met by the savings of the public; for he also said that he did not want the money supply to be restrained as the Government intended to restrain it. He wanted the money supply to be increased to match whatever was the going rate of inflation, assured that if he increases the public sector borrowing requirement he will have no difficulty in finding money supply to match the going rate of inflation.
The whole speech of the right hon. Gentleman, which purported to be an alternative to the policy enunciated from the Government Front Bench, was a plea for inflation—a plea with which all Chancellors of the Exchequer, certainly back to 1957, have been met at a certain point: "Give it up, old chap; it is easier if we resort to inflation again. Do not bother about the size of the public sector borrowing requirement if, in a period when there are so many difficulties, you ease the economy with additions to the money supply. Let's go back to inflation."
That is no true alternative. The future of this country depends upon a return to honest money, even if we are the first or the only nation in the world to achieve it. The Government have to stay with the plough to which they have set their hand, which means that, next year and the year after, their priority will not be tax reductions but a continuing and large


reduction of Government borrowing. In fact, the Government must be able to govern without recourse to borrowing.

Mr. Robert Hughes: That means cut- ting activity.

Mr. Powell: It does not mean cutting anything. I will explain why it does not. What the Government refrain from borrowing in order to spend themselves does not disappear into thin air. The £200 million—or £2,000 million—which, by reducing their Budget demands, and so reducing the public sector borrowing requirement, the Government do not collect is resources which they would otherwise have obtained by taxation or by inflation. Untransferred to the Government's hands from the hands of the public they still remain: they are not lost or destroyed, but only deprived of the power to generate inflation by remaining under the control of the public at large and not being brought into the State sector.
This is the ultimate test, the acid test—the behaviour over the next two, three or four years of the Government's borrowing requirement—of the sure-footedness—I use the word of the right hon. Member for Taunton—with which the Government carry out what is the only available option for this country.

Mr. Chris Patten: The speech of the right hon. Member for Down, South (Mr. Powell) was a characteristically clear and coherent statement of his position. It was intellectually respectable, which is more than can be said for the speech earlier in the debate by the former Chancellor of the Exchequer, the right hon. Member for Leeds, East (Mr. Healey).
We recognise some of the difficulties of the right hon. Member for Leeds, East. He has his record. Today he spoke a good deal about monetarism. He condemned it as vigorously as when he squeezed the money supply so tight that, to coin a phrase, he had the gurus of monetarism howling with anguish. Then, when he was posing as a kind of one-man answer in the Labour Party to Greenwells, he increased the money supply in the run-up to the last election.

The right hon. Gentleman's record is exactly the same on public expenditure. First he took the brakes off, then he put them on again. All credit to him. He put them on so hard in 1976–77 that he would not even let his hon. Friends vote on the public expenditure White Paper in 1977. Then he took the brakes off again in the run-up to the election, and public expenditure surged ahead.
That is the legacy with which my right hon. and learned Friend the Chancellor of the Exchequer is having to deal. He must deal with the consequences of the previous Government's last public expenditure White Paper, which was a work of the wildest fantasy. Time after time we have come up against the problem that is made perfectly clear in that White Paper—that is, our tendency to spend money that we do not have. Again and again we make wishful assumptions about the capacity for growth in the economy and spend the proceeds before we have earned them. Indeed, because we do that, we never get the growth in the first place. That habit is one of the main causes of the increasing burden on the ever-declining productive part of the economy.
The former Chancellor has put that point himself very well. He was reported as saying back in 1976, when speaking upstairs to a confidential meeting of the Parliamentary Labour Party—and it is difficult to put it any better:
The steady contraction in our manufacturing industry is the main reason for our disappointing performance since the war. The contraction must be halted and reversed. But we cannot reverse the trend if we plan to take more resources into the public sector.
That was presumably one reason why the Labour Government said in the letter of intent to the IMF that an essential element of their strategy would be a continuing and substantial reduction over the next few years in the share of resources required for the public sector. I agree with the right hon. Gentleman's speech and with the letter of intent. I think that those are admirable precepts for any Government to follow. I hope that they will be followed by my right hon. and learned Friend the Chancellor and by the Government, with the enthusiastic support of the Labour Party.
The Government have made a brave start to the difficult job of cutting the growth in public expenditure. To those


who seem to think that no cuts have taken place, I say that I wish that they would come and explain that view to my constituents. Although my constituents are considerate and perceptive, I think that they would give that argument fairly short shrift. The fact that even with the sacrifices that have been made so far we have made such a small dent in the problem indicates just how large is the task and how long it will take to turn matters around.
We shall get more out of bearing down consistently on public spending over a period of years than out of following previous practice, which has usually been a matter of indiscriminate cuts in spending, followed by equally indiscriminate increases as a response to the outcry at the initial cuts.
It is true, of course, that we must make more savings, although more savings will require policy changes and not just percentage cuts across the board. It is also true, as my right hon. and learned Friend the Chancellor was saying, that we should be able to make economies in administration. However, I hope that no one thinks that we can make all the savings necessary out of waste and out of administration without affecting the services. It is living in cloud-cuckoo-land to take that view.
I also hope—I was encouraged by what the Chancellor had to say—that we shall not become too obsessed by the PSBR. I realise that as soon as one says that, one is in danger of being regarded as a trifle on the damp side. People mutter darkly in corners about U-turns. Nevertheless, I do not see why a commitment to support the Government in following through the policies on which they are embarked should prevent one from taking a fairly flexible view about how the management of the economy should react to events. Nor should it oblige one to embrace positions that are economically illiterate.
Normally, when I hear the words "public sector borrowing requirement" I feel—to use a phrase which I once heard used by my right hon. and learned Friend the Member for Hertfordshire, East (Sir D. Walker-Smith), speaking in a different context—able to contain my enthusiasm within the bounds of decorum.
There is a very learned abstruse debate about the PSBR at present. There are

those in the Bank of England, who have produced a paper on the subject, who criticise it because it does not take sufficient account of inflation. There are those in the Treasury, who have published documents on this aspect, who criticise it because it does not take account of the level of activity in the economy, and they want something nearer to the American model. My position is rather simpler. When we are sceptical, quite rightly, about economic targets, it is not very sensible to pin quite so much faith on a figure which it sometimes seems can be constructed with mirrors and which is subject to even larger margins of error than most of the other targets about which we are sceptical.
In the context of this debate about the PSBR, I very much welcome the appointment of Professor Burns as the Government's chief economic adviser, provided that it means what it seems to mean. After all, the objective is lower money supply targets. As Professor Burns' colleague, Alan Budd, pointed out in a good article in The Times last week, a higher PSBR and a lower money supply target are not inconsistent objectives. Budd argued that very forcefully. He wrote:
The tendency for the PSBR to be higher when output is cyclically lower is offset by the tendency for bank lending to the private sector to be lower and private sector purchases of public sector debt to be higher. The net result is to leave monetary growth unaffected.
I hope that in the light of the appointment of Professor Burns, and in the light of what my right hon. and learned Friend the Chancellor has said, I am banging my head against an open door.
I make a final point about another Burns—Arthur Burns, the former chairman of the Federal Reserve System, in the United States and a rather more formidable exponent of free market economics than even the former Chief Secretary to the Treasury. I have just been reading an impressive series of articles and essays by Arthur Burns, in which one of the constant themes is that monetary and fiscal responsibility are essential but not sufficient conditions for economic prosperity.
I am reminded of that point being put in a similar way by my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph), now the Secretary of State


for Industry, a few years ago. I am particularly struck by that thought when considering the present pay round and what both the former Chancellor and the present Chancellor have said today. I do not think that anyone could accuse the present Chancellor of painting the clouds with sunshine. All credit to him for being so realistic about our economic prospects. However, when I looked at the Treasury's economic forecasts last week I wondered whether the Treasury was not a shade over-sanguine about the present pay round. If the pay round works out at a higher figure than that for which the Treasury has bargained, that could well mean that the slide into the recession will be less steep, but it will make the recession both longer and more painful.
Therefore, I fear that once again we may well be up against the question which Beveridge put at the end of the war and which we have failed to answer consistently over the last 20 years, namely, whether a rising spiral of wages and prices, and, indeed, unemployment, can be prevented while collective bargaining, with the right to strike, remains absolutely free. I do not think that we have answered that question conspicuously well in the last few years. If we are to stand any chance of succeeding in the next few years, we must find a rather better answer to it.
That will involve, among other things, the re-establishment of political authority in this country and the placing of at least a modicum of trust in political action. While many strong arguments have been put by the philosophers of the social market, some of the most fervent advocates of that philosophy seem to be in danger of almost discounting the efficiency of any political intervention in our affairs. They give the impression sometimes that everything can be solved by the ebb and flow of domestic credit or by the movement of market forces.
I do not believe that, in the long term, and, arguably, even in the short term, one can deal with irresponsible pay bargaining in that way. It is often the innocent who suffer from irresponsible pay bargaining. I also wonder whether there is not something a touch corporatist in arguing that decisions as fundamental as the level of employment or unemployment

in the economy should be left to those great corporations, the trade unions.
I should not be so foolish, after the experience of the last few years, as to make a speech advocating the immediate launching of another formal incomes policy, which I recognise has often led to almost as many problems as it has solved. I am not sure I agree, however, with those who say it has led to more problems. Nor, I am sure, would Mr. Burns agree. Nor would I argue the case for an incomes policy at a time when there is not much sign that the trade unions would be wildly keen on the idea. I welcome, nevertheless, the speeches that some of my right hon. Friends have been making recently about the catastrophic effects of irresponsible pay bargaining.
I hope that my right hon. Friends will make those speeches even more loudly. I hope that they will press ahead more vigorously with reforms of the labour market, with improving the system of pay bargaining, and with setting up the dialogue, on which my right hon. and learned Friend touched and which was foreshadowed in some of the policy documents that we produced in Opposition and foreshadowed, too, in our manifesto, between the Government and both sides of industry about our economy. I realise that it is uphill work, just as cutting public expenditure is uphill work. But it is important to concentrate on that job—the labour market, pay bargaining and so on—because, as my right hon. Friend the Member for Leeds, North-East has said, and as is known on the Government side of the House, although the former Chancellor did not always recognise the fact, monetarism is not enough.

Mr. Joel Barnett: I agree with the hon. Member for Bath (Mr. Patten) at least about the possibility of a slight increase in the PSBR being necessary and, indeed, required. The hon. Gentleman's answer to the customary over-simplified logic of the right hon. Member for Down, South (Mr. Powell) was an excellent one, with which I would entirely agree.
I agree with the objective of the Chancellor in seeking to reduce, the very high level of inflation. I am, however, extremely worried about the strategy on which he bases his policy to reduce it.


I think that the hon. Member for Horncastle (Mr. Tapsell), in an intervention, virtually made the point that I wish to put. It seems to me that the policy is a sort of simplified squeeze-inflation-out-of-the-system strategy. It is the sort of strategy that would do untold damage to the system itself. It is a "kill or cure" strategy. I fear that the simple bitter medicine—I have the impression that the hon. Gentleman thinks so, too—of money supply—advocated with even greater fanaticism by the right hon. Member for Down, South than even by the Chancellor—would leave the basic disease—

Mr. J. Enoch Powell: The right hon. Gentleman should remember the last person to call me fanatical.

Mr. Barnett: I withdraw the word "fanatical".

Mr. Powell: That is perhaps a good thing. I recall that the last person who called me a fanatic was Lord Barber.

Mr. Barnett: I am not sure that I would wish to withdraw the word for the same reasons. I do not wish to withdraw anything that I said about the right hon. Gentleman's views on money supply. I am happy, if it offends him, to withdraw the word "fanatical".

Mr. Powell: It just reminded me.

Mr. Barnett: I am happy to have the right hon. Gentleman reminded.
The Chancellor's apparent aim of reducing the level of inflation—treating that as the basic disease—is likely to leave the truly basic disease worse than when he started. I want to see inflation reduced and the cure applied to what I consider our basic disease, namely, our poor industrial performance, over many years, under successive Governments. To do that, one needs to reduce the high rates of inflation. But to suggest that the rate of inflation is the sole objective, to the exclusion of almost all else over the next few years, would leave the basic disease much worse than when one started. It was pretty bad when one began. Unless it is possible, by the time we get inflation down, to deal with the basic disease of our poor industrial performance, the cure that the Chancellor proposes will leave us in an even worse vicious circle than we have experienced in recent years under successive Governments.
Our poor industrial performance over many years has led this country to have the lowest possible rates of growth among major industrial countries. Yet all Governments have maintained private and public expenditure at levels higher than we could afford. The worst consequence of that has been not the excessive borrowing or taxation levels. In practice, as a percentage of GDP, borrowing and total tax levels have not been excessively high. Far worse have been the consequences of allowing consumption—that is, current expenditure, both public and private—to grow at the expense of desperately needed investment in the public and private sectors. The Chancellor, in terms of his policy in relation to North Sea oil, the exchange rate and exchange control, is accelerating the pace of our industrial decline. If improving our industrial performance is our central objective, one is bound to ask the fair question whether the weapon of money supply that he is using will achieve that objective.
One is bound to accept that a 17 per cent. minimum lending rate will have some effect in the real world. No one denies that. Speaking for myself, I accept all the points that have been made about the difliculties of measuring money supply and the time lags in judging when it will become effective. But, if the Chancellor maintains a squeeze on the growth of money supply and, more important, maintains it long enough, one is bound to accept, as I do, that it will bring down the level of inflation. One must accept that. It will bring down the rate of inflation. It may well eliminate it. But what else will it eliminate in the process? What will it do to the poor industrial performance about which hon. Members have expressed great concern? In the private sector, as everyone accepts, the elimination of inflation by this process alone will be utterly disastrous for many businesses, and not just small ones, although they will be the hardest hit.
If the Government follow that course and then, in next year's Budget, give a tiny handout to small businesses, I say to the Chief Secretary to the Treasury that this will be the greatest irony of all. I heard of an example the other day of the consequences of this policy on businesses, particularly small ones, which are hardest hit, not only by Governments and banks but by their biggest suppliers


and customers. A man highly successful in a medium-sized company had planned to increase investment by 25 per cent. because he saw a substantial increase in his productivity. The day after MLR went up, he cancelled that investment order. The Chancellor may disagree with that man. That is not the point. That is what he did. Whether we agree or not, he did it. Unfortunately, at the end of this monetary squeeze, there will be an even bigger reduction in our manufacturing capacity than there was when we started. That is why it is such a disastrous idea that controlling the money supply alone will handle the problem.
The Chancellor does not believe the forecasts of his Treasury officials—I understand that—but among the forecasts, working assumptions or whatever he likes to call them with which he does not agree is the prophecy that there will be a 7 per cent. fall next year in private manufacturing investment—just for starters. That will come at the end of this period of monetary squeeze, together with the reservoir of bitterness that he will have created throughout industry and the public sector.
The public sector will be no better off than the private. The Chancellor has said that he intends to "roll back", as he puts it, the boundaries of the State. One of his own Treasury forecasts with which he does agree is that there will be some fall in the GDP in 1980–81. That means, as some of his hon. Friends have said, that there will be an increase in public expenditure, as a percentage of GDP.
I must make it clear that I do not complain about that. I have been quoted almost interminably in defence of the public expenditure cuts by the Prime Minister, the Chancellor, the Chief Secretary—

Mr. Biffen: Not by me.

Mr. Barnett: Not by the Chief Secretary, I grant him, but by Old Uncle Tom Cobbleigh and all. I have no apologies to make about the article that I wrote, published in The Guardian on 25 September. I do not withdraw a word of it. I only wish, if Ministers intend to quote what I said, that they would not be so selective. I wrote:
All in all then, there are no miracles left. We have to face the unpalatable fact that

with, at best, reduced economic growth and, at worst, nil or even negative growth, public expenditure cuts will be necessary"—
Ministers usually stop quoting at that point; I went on—
not to create room for Conservative-style tax cuts but to ensure that socialist priorities in public expenditure are safeguarded and vital public services are not deprived of essential additional funds.
I do not withdraw one word of that article.
I recall that the fiercest criticism of the cuts over which I presided in the past five and a quarter years, by the Chancellor and other members of the present Treasury team, was that they worked too much on the capital side of pubic expenditure. I accept the criticism, knowing, as I found, that it was difficult to cut elsewhere.
However, the astonishing thing—perhaps it is not so astonishing—is that the new Chief Secretary and the Chancellor have quickly come up against exactly the same problem. Their cuts, outlined both in the White Paper and in the Budget, have been falling disproportionately on capital.
I noted with great interest that, when the right hon. Member for Taunton (Mr. du Cann), the chairman of the 1922 Committee, spoke of the need to consider removing the indexation of social security benefits, the Chief Secretary nodded in agreement. [An HON. MEMBER: "Jolly good."] If that is jolly good, the Chief Secretary should say so when he winds up, because millions of old-age pensioners and others will be a little concerned about it. I hope that he will say that his nodding in agreement signified no more than that he had lost the battle in the Cabinet—but perhaps not.
The criticism of the public expenditure cuts which I introduced over the past five and a quarter years was that they fell disproportionately on the capital process, which was because of the difficulty of cutting current expenditure—particularly in the biggest area, social security—or of eliminating waste. The Government now have Sir Derek Rayner and three members of his staff considering the whole of public expenditure so as to cut out waste.
As admitted in the public expenditure White Paper, which relates to only two years of this Government—to April 1981—there ain't gonna be a lot of cutting out


of waste, but there will be disproportionate cuts in public expenditure, despite everything said by Tory Members.
Criticism of the Chancellor is easy and well deserved, but it has been asked: what are the constructive alternatives? The answer is not difficult for those who propose fundamental change—for example, though not entirely—on a strategy of import controls. This is not the time to go into that strategy in detail. As the right hon. Member for Taunton seemed to imply, a Conservative Government might have to move in that direction. I would only say that it would be foolhardy to plan on spending the money that one thinks that that or any other strategy will produce. Indeed, serious economic advocates of the import control strategy recognise that it would necessitate substantial cuts in both public and private consumption. That is not recognised by all the advocates of import controls but it is recommended by those who advocate it seriously on economic grounds.
Given the failures of successive Governments to achieve the sort of growth levels that I would have liked to see, it is understandable that there is a desperate search for alternatives. However, as I have said, there are no magical solutions, and in any case they will not be found, I am sad to say, by the present incumbents of the Treasury Bench, who pursue a doctrinaire monetarism with a dogged determination worthy of the converts that we know they are—I excuse the Chief Secretary.
They truly do not understand what they are doing. If they did, I cannot believe that even they would continue to pursue this course. When it comes—dare I use the word?—to fanaticism, the Chancellor has nothing to learn from the Ayatollah Khomeini himself. On the money supply, he is so fanatical—[Laughter.] I see that the Chief Secretary is not offended by that word, even if the right hon. Member for Down South is. The Chief Secretary does not mind being considered a fanatical monetarist. He always has been: he even finds it amusing.
The trouble is that the only realistic solutions to our basic industrial troubles are neither quick-acting nor dramatic. They require patience and understanding and they will require co-operation with the trade union movement, which will not

be easy to obtain. I speak with some feeling—I know that that co-operation is not easy to obtain—but this Government are making it impossible.
I hope that those engaged in Government and industry will not assume that the winning of one ballot of one membership is sufficient to enable them to run British industry and deal daily with those union officials, at all levels, who are concerned with the well-being of their industries. As the Donovan report showed, 98 per cent. of shop stewards do a first-class job in oiling the wheels of British industry. Only idiots would seek to destroy that movement. Any Government and any management with any sense at all would seek to work with it.
It should be possible to get that co-operation, and, if we did, it would be possible for a Government at the same time to restrain private and public consumption. That may take a little longer to reduce the level of inflation than if the Chancellor pursued his monetary fanaticism to the nth degree—which I doubt is possible—but at least it would leave us in the end in better shape than the present policies are likely to do.
Of course, there is a need to control the money supply—no one disputes that—but to control its growth to 9 per cent. when inflation is running at 20 per cent. is to court disaster for British industry generally and for most of the public sector as well. That target must be relaxed. It will have to be relaxed at some time over the next few years, so the earlier the better.
The hon. Member for Bath said that he thought that perhaps the PSBR should be increased slightly. I understand and to some extent sympathise with the Chancellor's disagreement with his Treasury officials, but to fudge the borrowing requirement in those forecasts, to be ashamed to say that it will be £9 billion or £10 billion next year and to substitute an estimate of 4½per cent. of GDP, is ludicrous: the Government should not have done it. They should have said what they expect the borrowing requirement will be next year.
At present, given the artificial definitions of what is and is not included in the borrowing requirement, it is nonsense to suggest that 4½per cent. of GDP is an


excessive borrowing requirement. It is crazy to say that it is necessary to have the minimum lending rate at the astronomical height of 17 per cent. That is not needed for the control of the money supply. There are other methods. The Chancellor said today that direct intervention distorts, but what will 17 per cent. MLR do? It is crazy to have a system that requires a 17 per cent. minimum lending rate to finance a perfectly reasonable borrowing requirement.
During the past five and a half years, some of my colleagues thought that the City did that sort of thing only to a Labour Government. Conservative Members thought that, with the greater confidence in their Government, high interest rates would not be necessary, but when it comes to making money the City is not interested in who it voted for. What matters is ensuring that the Government are obliged to pay the highest rate possible. I make it clear that I find it as unpalatable for a Conservative Government to have a 17 per cent. MLR as I do for a Labour Government to have such a rate.
That rate should not be necessary with a borrowing requirement of £9 billion or £10 billion, which can vary by £1 billion or £2 billion according to which assets are sold, what is included and whether telephone bills and VAT receipts are counted this year or next. It is mad in those circumstances to suggest that the only way to control the money supply is by a 17 per cent. MLR.
In the first half of 1979 alone, savings from the personal, industrial, commercial and financial sectors were nearly £19 billion. It is an odd argument that an MLR of 17 per cent. is necessary to attract some of that money.
If the Government or the House expect the co-operation of the trade union movement, we should expect no less from City institutions to finance a not unreasonable borrowing requirement. I make it clear that that does not mean that we can avoid restraint in public and private consumption in order to obtain the essential investment that we desperately need, and there is no way of ducking the fact that that means an incomes policy. The absence of such a policy and relying in the private sector only on money supply will inevitably result in massive unemployment and, even worse, lower investment,

which will gravely affect future living standards. In the absence of an incomes policy, and relying only on cash limits, the public sector will also not be able to safeguard desperately needed investment, let alone the decent, civilised standards that will be supported by more and better public services. That is far more important than a few pence off the rate of income tax.

Mr. Roy Hughes: Does my right hon. Friend recall what happened in the Parliament of 1966 to 1970? I absolve him from blame because he was not a member of that Government, but he will recall that we had a firm statutory incomes policy. There were such measures as taking a penny off the building workers, which was freely negotiated, and £1 a week off the municipal bus men. Alongside that we had a dramatic increase in unemployment. How does my right hon. Friend explain that?

Mr. Barnett: The Chancellor—[Interruption.] I wish that my hon. Friend the Member for Liverpool, Walton (Mr. Heffer), of whom I am very fond, would let me answer one question at a time. The Chancellor has to choose. We can have no incomes policy, control of money supply as a means of bringing down inflation and cash limits—because the cash will not be available—and all the consequences of that, not only for public services and the incomes and employment of the people that we represent but for the fair distribution of incomes. I am not advocating a statutory incomes policy. I never have and I never voted for one. I prefaced my remarks by referring to the urgent need for maximum co-operation from the trade union movement.

Mr. Robert Hughes: rose—

Mr. Barnett: I think I must get on, many hon. Members wish to speak. If we are to maintain decent public services—and I want to see that as much as any of my hon. Friends—we must recognise that there is a limit to how much money will be made available. If money is to be taken up by 20, 25 or 30 per cent. increases in income, quite apart from the unfairness of that, there is less available for the public services that we all desperately want to see improved. We must recognise that.
The Chancellor's present crisis has led him to conclude that there is no room for


tax cuts next April. Indeed, he indicated that today. The impression that I gained from his speech was that he might have to increase tax. One good result from this disastrous past six months is that at least the Chancellor is recognising that there is a limit to how much he can cut the vital public services on which our society depends.
I do not expect the Government or the Chancellor to adopt taxation, public expenditure or incomes policies of the kind that I prefer, but I hope that a growing number of Cabinet Members and Conservative Back Benchers will recognise that cocksure Treasury Ministers do not have all the answers.

Biffen: Hear, hear.

Mr. Barnett: I am prepared to include myself, as a former Treasury Minister, but I have never been quite as cocksure as that lot. I hope that other members of the Cabinet who do not normally speak on expenditure and the economy will recognise that in the interests of the country as a whole they should stop this "kill or cure" strategy. They should prevent the worst excesses of monetarism which, if persisted in, will do untold damage to the fabric of our society.

Mr. Tim Sainsbury: I hope that hon. Gentlemen will have noted what the right hon. Member for Heywood and Royton (Mr. Barnett) delicately referred to as a need for restraint in public expenditure. It was reassuring to know that he has not withdrawn or recanted those wise words which appeared in The Guardian and which are often quoted. They will go on being quoted until his right hon. and hon. Friends have appreciated their meaning.
The right hon. Member used the word "disease". He was referring to poor industrial performance, but I believe that he would accept its being widened and called the disease of low productivity. He did not appear to recognise that the two ills of our economy—high inflation and low productivity—are inextricably interlinked. The economy has suffered from high inflation for much of the past decade, which inevitably produces uncertainty. As is often pointed out, uncertainty is the worst enemy of investment, and the right hon. Gentleman was calling for investment

to improve the poor productivity and industrial performance about which he was complaining.
Industrialists, or those in the public sector with responsibility for investment decisions, have to forecast over a long period of years the outturn of a particular investment project, and they are faced with a wide range of inflation possibilities. Some forecasts will naturally be unpleasant to contemplate. There will be a major element of uncertainty and doubt about whether an investment will perform satisfactorily and produce a reasonable return.
The ills from which the country suffers are joint ills which interact with each other—too high inflation and too low productivity. Few people would disagree that those are our most serious problems. The apparent disagreement in this interesting debate is about the cause of and the cure for those ills. I should like to argue that when the diseases are so serious we would be foolish to refuse the medicine that can bring about a cure just because it is unpleasant and has temporary nasty side effects. It would be even more irresponsible to reject the medicine when other remedies, some of which have been advocated in the debate, have been tried and found to be universally ineffective.
Let us consider briefly some of the remedies. First, we have heard from the spend-more enthusiasts, of which number the right hon. Member for Leeds, East (Mr. Healey), the former Chancellor of the Exchequer, spoke today. I find their cure rather like recommending the application of more leeches to a patient who is dying from loss of blood. We were left with no explanation of that cure. My hon. Friend the Member for Putney (Mr. Mellor) tried to find out from the former Chancellor of the Exchequer where the money for that additional expenditure would come from. The right hon. Member for Heywood and Royton suggested that that was an unwise course. Would the money come from taxation? Anything that is more likely to damage productivity and discourage investment than increasing taxation to pay for more Government expenditure I find hard to imagine. If it was not to come from taxation, would the right hon. Member for Leeds, East have borrowed the money? It is difficult to see how he could do that without running the risk of driving interest rates still higher. We must


assume that even he has learnt that it would be unwise to print the money. I should have liked to hear more on the question from the right hon. Gentleman.
Some hon. Members advocate that instead of bleeding the patient by spending more money he should be put in a straitjacket. That remedy usually commands great support from the Liberal Benches. Of itself that makes it suspect, if for no other reason. John Pardoe has indicated his enthusiastic support for putting every price, wage, salary and dividend into a rigid straitjacket of control. That convinces me that it is an impractical solution to the problems of our economy. It is a cure that attacks the symptoms rather than the causes of the diseases from which our economy suffers. It is likely to lead only to a postponement of the search for a real cure. Inevitably, it will significantly damage productivity and make it difficult to attract labour to expanding effective organisations. Recent experience has shown that when the patient is finally let out of the straitjacket his symptoms are far worse and harder to cure.
If we discard that solution, there is another medical cure that is advanced—put the patient into isolation. That is the sort of "fortress Britain" which finds enthusiastic support from the Labour Members below the Gangway. [Interruption.] I do not include the hon. Member for Hayes and Harlington (Mr. Sandelson) in that group. However, those hon. Members who usually sit on that Bench lend their support to that idea. Presumably, today they are rioting or demonstrating outside the House rather than inside.
I find the "fortress Britain" approach of surrounding our economy with a protective wall against nasty foreigners rather curious. It appears to be based partly on the theory that it does not matter if foreigners want to come and live here—that is fine—but if they want to stay at home, work and produce goods in their country and trade with us that is not so good. That is a very selfish approach. It ignores the major principle of the interest of the consumers, who represent the largest group in the economy and who deserve greater attention than they receive, particularly from those Labour Members below the Gangway. Not only does it ignore the consumers, but it

ignores the dependence of our economy—perhaps more than any other developed economy in the world—on the importation of most of our raw materials and almost half our foodstuffs. If we do that and yet place rigid restrictions upon everybody else's trade, we shall find that life becomes more difficult.
If we discard that cure, what other cures remain? Some hon. Members, including some of my right hon. and hon. Friends, say that the answer must be not to spend more but to cut more and find yet more savings in public expenditure. I agree that we must find more savings in public expenditure. However, surely the question that needs to be asked is where and at what speed those cuts should be made. I should like to take up the point made by my right hon. Friend the Member for Taunton (Mr. du Cann) and my hon. Friend the Member for Bath (Mr. Patten) that if savings are made in public expenditure too quickly the inevitable targets are the easy ones. There will be a postponement of capital projects, such as the opening of a new school or an old people's home. Grants will be dropped here or there. I see the right hon. Member for Heywood and Royton nodding. Those are the projects from which the Treasury will find it easy to get savings.
The faster we go, the more likely it is that those sorts of projects will be attacked. Eventually when such institutions open the original expenditure still remains. The operating costs of the public sector remain the same. That was the point emphasised by my right hon. Friend the Member for Taunton. What we need to do is to tackle not just the administration costs but the operating costs, the continuing costs, in the public sector. If we are to get savings from that area, that cannot be done too quickly. It requires management, initiative and the determined backing of central and local government progressively to squeeze more efficiency in and more waste out.
If we can succeed in doing that over a period of years, we shall make an effective contribution to reducing public borrowing. Without that reduction we shall not achieve the necessary reduction in inflation. I give that objective the highest possible priority. I reject the arguments of those who advocate not worrying about inflation or productivity because


those diseases will not kill. It is argued that we can survive with high inflation.
The right hon. Member for Heywood and Royton argued that the side effects of the medicine to tackle inflation are so unpleasant that we should not try it. It might be possible to survive with high inflation and low productivity, but the economy could not succeed with those ills. Productivity and investment would be harmed. In the long term there would be fewer resources available for all the desirable social objectives that we all wish to see fulfilled. If we were to continue with high inflation, we should have not only an unhappy society but, potentially, an unstable society.
The ills from which we are suffering are serious. It is not surprising that the medicine is rather unattractive—indeed, nasty. The alternative remedies have failed or are totally inappropriate. I recommend the House to show its determination to fight inflation and in so doing to support the Government's policies.

Mr. Richard Wainwright: In the summer the Government had a conspicuously good opportunity to reduce the public's expectations of inflation, and to reduce inflationary expectations is a powerful way of helping to reduce inflation itself.
The Government were elected with a substantial majority within this House. They were newly elected with a reputation at that time for great resolution and immense faith in their own armoury. If in the early months they had supported their attempts to restrain the money supply by, for instance, acknowledging that they had to have a public sector pay policy and not pretending that they could abdicate their responsibilities to Professor Clegg or anyone elese, if they had gone back to their 1977 document, "The Right Approach", in which they proposed a forum in which the major participants in the economy would consider pay bargaining along with the Government's fiscal and monetary policies, and had they brought that in in aid of their attempts to restrain the money supply, I think that they would have stood a chance of convincing the greater part of the public, in spite of anything said by the Opposition parties in criticism of their policies.
When the Government were newly elected, I think that the public would have accepted that inflationary expectation could be sharply lowered. Unfortunately, in the aftermath of the election the Government have turned aside, almost with contempt, from all other ways of influencing pay bargaining. They have insisted that their monetary policies are sufficient and may be relied upon. That obstinacy has destroyed their credibility with the greater part of the public. As inflation has continued to mount, public faith in the monetarist remedy alone has crumbled. It now appears that the Government's policy can be shifted off course merely because of a dispute in the telephone accounts department. That destroys their credibility, and the public no longer believe that the Government have the weapons that are necessary to deal with inflation.
The Government's policies are bound to fail as long as they confine their attention to trying to restrain the money supply. In spite of all their speeches about incomes and pay settlements, they have never managed to establish in the public's mind any real or credible connection between the pay settlements of a group of workers and the threat to the security of those same people's jobs. Treasury Ministers are tireless in stumping the country trying to get the public to believe that if a group of workers receive an extravagant pay settlement the job security of that very group will be threatened in consequence. That is an alleged sequence of cause and effect which, in my view, has no credibility and deserves none.
There is no direct cause and effect relationship between what a group of workers manage to obtain by way of a pay settlement and the threat to their own jobs. Unemployment almost always falls elsewhere. The penalties of excessive settlements fall on others, including those who have left employment altogether and are pensioners.
In my constituency and in that whole area, it is the wool textile workers who are being made redundant. It is they who are losing their jobs. Yet they are members of one of the most co-operative, helpful and constructive groups of trade unions in Britain. They have never stood out for anything that could be called an extravagant pay settlement. However,


they are losing their jobs while other groups that have managed, through union monopoly power, to get what I acknowledge to be extravagant pay settlements are still doing very well, thank you. It is the failure that is built into the Government's approach to establish a cause and effect relationship that destroys any credibility that they might otherwise have.
I hope that the one chink of light—it is a small and dim one—that appeared in the Chancellor's speech will be enlarged by the Chief Secretary when he replies to the debate tonight. The right hon. and learned Gentleman inserted at the end of his speech a faint reference to attaching more importance to NEDC and to making his own contribution to it as Chancellor more conspicuous. Was that meant to mean that the Government are returning to the Conservative notion of 1977 of having a forum in which the major participants in the economy will consider pay bargaining along with the Government's monetary and fiscal policies, or was it merely a bit of window dressing to show that the Chancellor has no wish to be nasty to the trade unions? The passage in the right hon. and learned Gentleman's speech to which I have referred was far from clear, but I am ready to believe that it was not put in without some good reason. I hope that we shall hear the reason from the Chief Secretary.
I return to the Government's monetary policy. The bankruptcy of the Chancellor's approach was amply demonstrated in the exchange of questions after his statement on 15 November about minimum lending rate. My right hon. Friend the Member for Roxburgh, Selkirk and Peebles (Mr. Steel) questioned the right hon. and learned Gentleman and received the following reply:
We recognise, and continue to assert, the necessity for those responsible for pay bargaining to conduct their affairs in a way that is consistent with the growth in the money supply."—[Official Report, 15 November 1979; Vol. 973, c. 1520.]
That paraphrases what the Chancellor has been saying for months.
This is the opportunity to ask the right hon. and learned Gentleman what he is intending to convey by such oracular remarks. When he says that people must conduct their pay bargaining in a way

that is consistent with the growth in money supply, are they to consult the growth in money supply, say, two years previously? Are they to assess more recent growth of the money supply, or are they supposed to consult the forecasts of future growth in the money supply? Most odd of all, are they supposed to say "Money supply has gone out of control during October, so we may press for a pay settlement beyond the controls which sensible persons would suggest"? That is the essential weakness of the Government's approach. They are continually preaching attention to the money supply without ever explaining—in my opinion it is not possible to explain—exactly what they mean by the money supply, the methods of controlling it and the measuring of its growth.
It is significant that only a few days ago the Chancellor admitted that as a means of controlling money supply the Bank of England and the Treasury are shortly to produce a discussion paper. This should have been produced two years ago, before the Conservative Party committed itself to worshipping solely at that particular throne. It is an extraordinary admission on the part of a British Government that something central to their economic policy is now to be discussed on the basis of suggestions by the Bank of England and the Treasury.
The other contradiction, with which I close my catalogue, is that the Government assumed that, along with a draconian attempt to control the money supply, it is possible, at the same time, to introduce incentives. That is double talk, the effect of which has already severely rebounded on the Government. As has been stressed during this debate, Treasury Ministers are now warning the public that there will be no reductions in income tax, or current taxation, in the next Budget. Indeed, the public might well look for some increases in taxation.
That possibility should have been foreseen by the Government before they made their reckless attempt in the summer to kid the British public that there could be strict control of the money supply on the one hand and glorious incentives to entrepreneurial adventure on the other. Those objectives are not consistent, and the Government should acknowledge that, even to the point of eating humble pie.
If this situation is not corrected the crudest possible response will result—the intolerable injustice of a pay freeze. Because we can see no other conclusion to the Government's obstinate course, we shall vote with the Opposition tonight.

Mr. Robert Taylor: I certainly will not follow the line taken in the concluding remarks of the hon. Member for Colne Valley (Mr. Wainwright). The Government's measures are not leading in the direction that he suggested. The right hon. Member for Down, South (Mr. Powell), if I understood his speech correctly, gave wholehearted support to my right hon. and learned Friend the Chancellor and the Treasury team in the economic policies that they have pursued during their short period of seven months in office.
All my political life I have been convinced of the necessity of running the economy within strict financial limits. I have believed that the first duty of the Government is to protect the real value of money. Successive Governments have failed to do that, and certainly during the Budget debate of 1973 I was against my own party for its failure in that respect. Today—for the first time since I have been a Member of Parliament—the Government are making a real effort to achieve those ends. For that reason, they will receive my support.
It is common knowledge that in May we inherited a situation where current Government expenditure—and even more the planned expenditure—was running at absurdly high levels. Some steps have already been taken to bring that planned expenditure under control. Of course, those steps are painful. Like other hon. Members, I have received many letters urging me to vote against various proposals, particularly those relating to school meals and transport. Conversely, I have been urged, even by some of my hon. Friends, by way of early-day motions, to support extra expenditure for maternity and death grants, to say nothing of tax concessions for luncheon vouchers and fares of railway commuters. Those pleas will fall on barren ground. Government expenditure must come down and revenue must increase if we are to curb inflation and get the country back on the correct course. In my view, the Government

should be prepared to make positive suggestions for further economies for increasing Government revenue. I propose to make some suggestions. [Interruption.] If hon. Gentlemen will wait and listen to my argument, they may be surprised.
I turn to some points I made during debates on the Consolidated Fund. Substantial economies could be made in the Property Services Agency. The book by Leslie Chapman entitled "Your Disobedient Servant" should be compulsory reading for every Minister and for every right hon. and hon. Member of this House.
I do not believe that the Department of Employment should be involved in the professional and executive recruitment service. It should be returned to the private sector. Savings by the Department of Trade in expenditure on export promotion could be made. I make that point as chairman of the building materials export group, which is responsible every month for exports worth many hundreds of millions of pounds.
I turn to an area where we can look for more income for the Government. My right hon. and learned Friend the Chancellor should announce that the stock relief scheme is not intended as a permanent form of tax relief for the corporate sector. I tabled a parliamentary question a week ago asking how much was owed to the Exchequer by way of deferred tax on stock appreciation. I have had no reply, but I have received a letter apologising for the delay in replying. I believe that the amount owed is astronomical.
What has been the effect of the stock relief scheme? It has, of course, been a boon to every company which has increased its stock. My own company is not excluded. I and my company have, as have many other companies, benefited from the scheme. But the effect of the scheme is inflationary in the extreme because for every £52.50 of corporation tax saved a company has had to borrow £100 from the bank. That is the greatest single reason for excess money demand in the private sector and was blamed by the Chancellor for the recent increase in the minimum lending rate.
At the same time, the extra funding which has been obtained has in some cases


been used to finance inflationary wage settlements. Much of the relief under the scheme is used to finance stocks of imported goods, which has had an effect on the balance of payments. As a result of the denial to the Exchequer of substantial revenue, one must come to the conclusion that the overall effect of the stock relief scheme has not been to the advantage of the country. The earliest opportunity should be taken to announce that there will be a change in this area of taxation.
The Government have been in office for only seven months and they have already taken firm action in many areas. More such action is needed and the results will be painful. The escalation in world oil prices will increase that pain. No one will escape the difficulties, though the Government have a duty to help the more vulnerable members of the community. If they do their best in this direction and continue along the present path, the entire nation will ultimately benefit.

Mr. Douglas Jay: The Chancellor of the Exchequer's depressing speech convinced me even more firmly than ever that the Government's economic policies are the most ill conceived of any Government's since the war. They are pushing the country towards real economic disaster. I should not find the lack of social justice in the Government's policies so hard to accept if the doctrines on which they were based were sound or valid.
The Government's doctrine and the crude talk about the money supply and the public sector borrowing requirement are founded on at least four major fallacies. The first and the worst fallacy is the Government's belief that we are suffering from demand inflation, when in reality we are suffering from cost inflation. Demand is not the main cause of prices being forced up here and in most other Western countries. Prices are being forced up by costs which are due mainly, but not wholly, to extravagant pay claims. One cannot check that by shutting off demand, as the Government are trying to do.
A country can suffer demand inflation. An example is the famous inflation in Germany in 1922–23. Our wartime

inflationary pressure was the result of demand. The great Heath-Barber credit inflation of 1972–73 was demand inflation. Demand inflation leads to high profits, to rising production and employment and to high investment. Everybody knows that that is not what is happening today in this country.
Cost inflation, on the other hand, leads to low profits, falls in production, employment and investment, to closures and bankruptcies and, at the same time, to rising prices. That process is known as stagflation. It is clear that that is what we are suffering from today.
The Government's second major fallacy involves their confusion between the stock of money and the flow of spending. This fallacy is constantly propagated by the use of the muddled expression "money supply". Price levels are determined by the flow of money spent on goods, not by the stock of money in existence. Price levels are determined by two factors—the total flow of money spent and the flew of goods and services that are available. I am sure that nobody will dispute that.
Of course, changes in the stock of money affect the flow of money, but not directly. Many other forces also affect the flow. The stock of money cannot be calculated easily. It is not a simple lever to use, because it is hard to define and measure. Only a few months ago the United States authorities made a statistical mistake and as a result juggled wrongly with interest rates. The attempt to control the economy entirely by manipulating the so-called money supply is like trying to steer a car from the back seat with two pieces of string. One would have to go extremely slowly, and one would soon come to a grinding halt.
The Government labour under a third fallacy. Even if we were suffering from demand inflation, and even if the stock of money did wholly determine the flow of spending, public spending is not the only or the main cause of the growth in the stock of money. That can be so, but credit expansion by the banks is often caused by bank advances to private borrowers—a movement that is generated by the banks' urge to make profits.
Since the war, in the United Kingdom increased private borrowing from the banks has been the main cause of credit inflation. Between 1947 and 1951 I


presided over a joint Treasury and Bank of England working party which tried to restrain the growth of credit inflation. We were trying to do that even in those days. The pull towards expansion resulted from the urge of the private banks to expand their advances.
In the great Heath-Barber inflation of 1972–73, private, not public, borrowing led to credit inflation. Simple figures show that to be so. Between December 1971 and December 1974—the period of the Barber inflation—the banks' holdings of Government securities fell from £2·4 billion to £1·35 billion. The total advances rose from £29 billion to £76 billion.
The record of credit growth throughout the 1970s is even more remarkable. It completely refutes the doctrine that the PSBR has been the main culprit in causing an expansion in the stock of money. The document "Financial Statistics" of August 1979 stated that between 1970 and the first quarter of 1979 total sterling deposits in United Kingdom banks rose from £16,164 million to £48,617 million. In the same period, lending to the public sector rose by only £4 billion while lending to the private sector rose by about £30 billion.
That shows that the rise in the quantity of money in the 1970s was due overwhelmingly to private rather than public borrowing. Those Tory Members who chant the slogan "money supply" are making a case for public ownership of the clearing banks. However, that is not technically necessary as there are practical methods of directly controlling the expansion of bank credits, as an article in the current issue of Barclays Review makes clear.
The fourth fallacy involves public borrowing. Public borrowing, when it occurs, is not necessarily inflationary if it draws on real national savings. The crude doctrine that only the money supply and the PSBR matter is riddled with fallacies.
What has really happened? Throughout the Western world in the 1970s price levels have been forced up mainly by cost-push pressure from below. That is made plain because nearly all countries, including the United States, are experiencing low profits and stagnation of output rather than high profits and boom. All

British industrialists know that costs and not demand are forcing up prices. The cause of the world cost inflation in recent years is partly the oil cartel but mainly the discovery by organised labour here and elsewhere that it can force up pay rates pretty easily, faster than the increase in the rate of production. To put it crudely, the basic cause of our troubles is unrestrained collective bargaining.
The central economic fact is that it costs rise overall faster than output, either money demand will rise equally fast—in which case prices will rise and that will be called inflation—or money demand will not rise equally fast, which will result in a rise in unemployment and a halt in production. That is what is meant by stagflation and what we call world recession.
The fatal mistake of the doctrinaire monetarists is to treat the present cost inflation as thought it were old-fashioned demand inflation and to try blindly to deflate demand in order to cure it. Unfortunately, deflating demand these days does not automatically achieve pay restraint, as the Government are now discovering with every month that passes. If demand is thus deflated when costs are rising, profits will inevitably fall, factories will close and unemployment will rise. Worst of all, investment will then fall even further. I think that that is what will happen in the next 12 months if the Government's policies continue. Of course, a fall in real production and capacity in the long term is precisely the opposite to what we should be seeking.
Therefore, the true remedy is to attack the real disease, that is, to aim restraint at the source—cost inflation—which is at the root of the trouble, and so provide some chance of getting back to full employment and rising production. Inevitably that means an incomes policy supplemented by fiscal and credit restraint. There is no other way of ending the deflation of employment and investment that we now see.
The only serious objection that has been raised against the attempt to restore some sort of incomes policy is that it is very difficult and that it may not work. I fully accept that it is difficult and that there are all sorts of complications. But an incomes policy did work in this country from 1947 to 1951 and, with some success, from 1966 to 1970 and from


1975 to 1978. During all those periods there was a much lower level of unemployment than exists at present. Incomes policy is working in other countries now, and an example is Norway. Norway's official economic information report states:
The price and pay freeze has had the effect of halving the rate of inflation from 9·1 per cent. in 1977 to 4·5 per cent. in 1979.
Happy Norway with a successful incomes policy, a 4·5 per cent. rise in prices and no membership of the Common Market.
I believe that the Government will be forced into an incomes policy in the end, but the longer they hesitate the more appalling will be the damage to this country. To inflate costs and deflate demand simultaneously, as the Government are doing, is to invite disaster.

Mr. Peter Hordern: The right hon. Member for Battersea, North (Mr. Jay) is well known for his views in favour of incomes policy. He has always been brave enough to spell them out even when the going has been difficult.
I have been a monetarist since 1965. In those days we were a very small and esoteric band led by the right hon. Member for Down, South (Mr. Powell), my right hon. Friend the Chief Secretary and a few others who were interested in this strange science. Now it has become the currency of economic language and the official policy of the Government. I am delighted.
I notice that Labour politicians pay obeisance to monetarism. Even the right hon. Member for Heywood and Royton (Mr. Barnett) said that it was necessary to follow a strict monetary policy. But he also said that one must not make it too severe. He said that 9 per cent. growth in the money supply was altogether too restrictive. He and the right hon. Member for Leeds, East (Mr. Healey) said that the public sector borrowing requirement was too small and that public expenditure should rise to accommodate an increase in the PSBR so as not to produce too harsh an effect on the economy.
I welcome without reserve the policy of my right hon. and learned Friend the Chancellor in advocating and carrying through his monetary policy. It is a very

bold policy. As some right hon. and hon. Members have said, it is not easy even to measure the money supply, and it is a great deal more difficult to control it. So far as I can see, during their first six months the Government have not yet succeeded in controlling the increase in money supply. I believe that the rate of increase on the broad definition has been between 13 and 15 per cent. The difficulty of that is that the effect will be felt for at least another year, and maybe 18 months.
There are great difficulties in store for us, therefore. Those difficulties have been accentuated by the abolition of exchange controls. I unreservedly pay tribute to the Government for having the courage to abolish those controls, but that undoubtedly makes the carrying through of monetary policy much more difficult. One has to control bank lending, but it is possible for any company or customer in this country to borrow from any European or American bank with only prudential considerations preventing them from doing so. So it is difficult to control bank lending and, thereby, the increase in the money supply. That leads me to the view that the only effective weapon is that of the interest rate.
I well understand why the Government have had to raise MLR to the record level of 17 per cent. I am quite sure that that level of MLR will produce grave hardship to many people—to small businesses and to those who are buying their homes. But if fighting and controlling inflation by monetary policy means putting up MLR to record levels, so be it. We cannot shrink from the means of mastering inflation if we have the will to accomplish it. Of course, we must expect the Opposition to make the most of our difficulties, most of which they have left for us to solve. But theirs are not the only voices to be raised. Some of my right hon. and hon. Friends have also raised doubts—and more than doubts. I can understand those who have never liked monetarism or reliance on the market, preferring beer and sandwiches at No. 10, incomes policies—as the right hon. Member for Battersea, North does—and cosy fireside chats to the reality and the difficulty of controlling inflation.
For all the party rhetoric, there was not that much difference between the policies pursued by my right hon. Friend the Member for Sidcup (Mr. Heath) after


1972 and those of the last Government with, no doubt, the complete approval and backing of the Treasury at that time. What is common to them both is that they led to disaster, which was predicted by some at the time. It is necessary to say this now because I have no doubt that as the going gets more difficult those same voices will be raised again. They will be raised in the press, where the Government's economic policy is already described as an experiment when it has scarcely even begun. They will be raised at the Treasury and by some of my right hon. and hon. Friends.
They will be raised by my hon. Friends because of a genuine belief that monetary policy does not truly accord with Tory philosophy but accords with Adam Smith's philosophy and that of the old Liberal Party. Those hon. Members prefer a more pragmatic policy of intervention. I am also a pragmatist, but does intervention—as it has been practised during the last 12 years—work? The answer is "No".
Monetary policy will be uncomfortable for small businesses and for large concerns, especially those that are now paying high wages they cannot afford, because the Government are dependent on borrowing money from the institutions, and those institutions have perfect freedom to choose where they should invest. It is vital that the Government become less dependent on the market and that the public sector borrowing requirement be reduced.
I understand that the Treasury forecast for next year is that the borrowing requirement should take up the same proportion of GDP as this year. That implies a total of £9,500 million. That is far too large a sum when the market is so free to invest in other directions. Reducing the public sector borrowing requirement is no easy task. However, there are three ways in which it seems to me it could be reduced.
My right hon. Friend the Member for Taunton (Mr. du Cann) mentioned in his admirable speech the National Health Service administration. As my right hon. Friend said, in the 18 months after reorganisation of the NHS the number of administrative and managerial staff increased by 20 per cent. I accept the argument that before now it would have

been too early to contemplate any major change in the administration of the National Health Service. However, as the Government are talking of cutting out one tier of the administration, namely, the area health authorities, I think that after five years this change can and should be carried out speedily.
The second area in which the public sector borrowing requirement might be reduced has not attracted much attention. Yet enormous savings are implicit in the cost of pensions in the nationalised industries and in local authorities. Those pensions are index-linked and paid from funded schemes, unlike pensions in the Civil Service. I have suggested previously in the House that if those pensions are to be index-linked they should be paid as they arise. If that were done there would, according to the Government Actuary, be a saving of about £2,000 million a year. Such a sum cannot be waved away as unimportant, nor can it be considered as something that must be kept because of the essential importance of a funded scheme.
Natonalised industries and local authorities should be looked at in the same light as the Civil Service, with Government guarantees behind them. There should be no difference in the way they are treated. If it is possible to pay civil servants' pensions as they arise, and if, as the Government Actuary says, there will be a saving of £2,000 million a year, I cannot for the life of me see why we should not do that.

Mr. Michael McGuire: Was that calculation made when the Tory Government introduced the index linking and the pensions about which he now complains?

Mr. Hordern: No. The calculation was made in the report to the Wilson committee last year. It did not attract much attention at the time.

Mr. McGuire: Did the Tory Government consider it?

Mr. Hordern: Inflation then was nothing like the present rate, and public servants at that time needed a better deal. Index linking has proved to be very expensive. I object to providing index-linked pensions by means of funded schemes. It does grave damage to the


economy, because those schemes are paid for by the taxpayer and they run up large deficits. Much of that money is spent on property at home and overseas and, therefore, the success of those investments depends on considerable rent increases. That policy should be carefully examined, and I hope that it will change.
The third area in which substantial savings might be made is industrial subsidies. I do not refer merely to the cash grants that are given to industry or to regional grants. I refer to the cost of industrial allowances. My hon. Friend the Member for Croydon, North-West (Mr. Taylor) said, in an admirable speech, that there is also the cost of stock appreciation. The cost of those two allowances taken together would allow us to reduce corporation tax from the present level of 52 per cent. to 20 per cent. overall and still receive the same revenue.
Many hon. Members believe that it is right to encourage manufacturing industry. I ask them to consider what effect it would have on the economy as a whole and throughout the service industries if corporation tax were reduced to 20 per cent. Service industries are substantial employers of labour. I very much dislike the subjective way in which the Department of Industry makes cash grants and allowances. It would be better to have a flat-rate form of corporation tax. If necessary, some form of special lower rate of tax might be allowed in the development areas. The Irish Government have done that with some success.
The Government have embarked on a historic course. They are acting with boldness and resolution, and I wish them every good future and success.

Mr. Gordon Wilson: The progressive deterioration of the British economy has been taking place for many years. Every time that a Government come into office they receive a poisoned chalice from the preceding Administration. For six month, a year, or even two years, we hear the excuses made by the outgoing Administration and a panning-off of responsibility from the incoming Administration. The argument has continued for so long that references

are still being made to the 1973 policies of the previous Conservative Government and to what happened in 1974 when the Labour Party took office. An end must be called to that kind of argy-bargy.
The balance of trade and industrial competitiveness of the United Kingdom have deteriorated sharply. Successive Governments have not found a way to resuscitate the competitive nature of our industry. It is estimated that there will be a £4,200 million deficit on our trading account with the EEC this year. That deficit is already £3,200 million for the first nine months of this year. If that pattern of trade continues next year or the year after, the United Kingdom will be well on the road to industrial suicide.
My criticism of the Government is that in adopting different policies from those of the previous Administration they have gone overboard on monetary theory. Some of the effects of that change will be disastrous. We have already had an increase in the minimum lending rate. That will have a substantial effect on manufacturing industry. One wonders why the Government pushed ahead with substantial tax reductions when they came into office—apart from the honourable motive that they promised reductions during the general election—because shortly afterwards they ran into problems of inflation and a high public sector borrowing requirement.
I suggest to the Chief Secretary that the Treasury should give thought to the techniques of administering the British economy. The aggregate demand management of the past 20 years has proved a failure. Every time that there is a change of economic policy, it is applied holus-bolus to all parts of the United Kingdom, regardless of differences in local economies. I call those regional policies "sticking plaster", and they are inadequate. The Treasury must take a fresh look at overall economic management on a centralised basis, and the Government should seek to experiment wherever possible in providing a better economic climate for those areas that are suffering most and where the problems are greatest.
I should like to refer hon. Members to the Fraser of Allander Institute's quarterly


economic commentary of last month. In its outlook and appraisal the report says:
The previous two issues of this Commentary have both indicated that the Scottish economy has been performing poorly since the mid 1970's. This is true in both an absolute and a relative sense. Manufacturing production only increased by 1·2 per cent. between 1976 and 1978".
That was during the peak of the oil boom. The report continues:
and after dropping below 1975 levels in the first quarter of 1979, is unlikely to show any substantial improvement for the year as a whole. In an international context the 1975–1978 performance can best be described as appalling. Over the same period industrial production in Eire grew by 28 per cent., in Japan and the United States by 23 per cent. and in West Germany and France by 15 per cent. Inertia in developing new markets and lack of competitiveness in existing markets both contributed substantially to the virtual stagnation of Scottish output.
That is a savage criticism of the effect of the previous Government's policies. It is significant that during their term of office unemployment in Scotland rose substantially while they dismantled the regional employment premium and diluted the industrial development certificate policy.
The policies of regional help for areas such as Scotland have been insufficient and have led to the difficult situation described in the Fraser of Allander Institute's report. The Department of Employment Gazette shows that employment in Scotland was lower in March 1979 than in the previous three quarters and had fallen by 22,000 compared with December 1978.
We are faced this year with a rundown in our manufacturing sector. There have been closures of many well-known firms, and 80 per cent. of the redundancies are in manufacturing industry. Indeed, the figure may be much higher because firms are required to notify the Government of redundancies only if more than 10 people are involved. There are also the problems of disguised redundancies which occur with short-time working, and so on.
Set against that critical industrial position in Scotland is the reduction in the Scottish Development Agency budget this year and a reduction in overall funds. On the social side, £40 million of cuts will be made. That will be causing, on a United Kingdom basis, considerable difficulty to individual families.
The Secretary of State for Scotland, while expressing dismay about some of the closures that have occurred, has said that there will be no intervention from the Government to save jobs, and he admits that the monetarist and free market policies being pursued by the Government will make rescues in Scotland all the more difficult.
We are entitled to ask the Government what proposals they have to deal with the unemployment problem in Scotland. They may say, as have successive Governments, that regional policies exist and that Scotland should not be exempted from the effects of overall economic direction. It would be damnable if the Government pursued that view. Areas such as Scotland, Wales, Northern Ireland, the North of England and all those suffering the effects of the profound debilitation of the industrial economy should be given specific economic assistance rather than the regional help that has been given in the past which, as is demonstrated by the Fraser of Allander Institute's report, has not led to an improvement in the competitiveness of Scottish industry.
Other countries have managed to secure remarkable changes. The right hon. Member for Battersea, North (Mr. Jay) said that the Government of Norway had succeeded in reducing the rate of inflation. He could have gone on to say that the most recent reports from Norway show that industrial production indicators are much more optimistc and that Norway seems to be starting a period in its economy when it is hoped that manufacturing will increase. The news from the shipbuilding and shipping sectors is already encouraging.
The Government of the Republic of Ireland have introduced imaginative schemes to attract industry. They have offered generous regional incentives and taxation and fiscal reductions. Last year the Republic gained 30,000 new manufacturing jobs, and the target for this year is 25,000. Eire has already beaten Scotland this year by attracting the Mostek microelectronics development, which could give rise to 2,000 additional jobs, and it is chasing another development by the Rockwell Corporation. The SDA has indicated' that it has great difficulty competing with the terms that the Irish are able to offer.


The jobs going to Ireland would have come to Scotland or other parts of the United Kingdom only about five years ago when our incentives were far more generous.
The changes taking place in Scotland are depressing. There has been a spate of closures, and the de-industrialisation which is having a particular effect on manufacturing industry, presages a difficult future. The Government must tell us what proposals they have for helping areas such as Scotland. So far they have tinkered with regional incentives and have caused some wrath in Aberdeen. The hon. Members for Aberdeen, South (Mr. Sproat) and for Aberdeen, North (Mr. Hughes) have made it clear that although Aberdeen is doing well in comparison with other areas in Scotland, a structural problem could occur in the city as the oil industry dies out.

Mr. Robert Hughes: Will the hon. Gentleman at least give me credit for being consistent in seeking Government support and intervention in industry? The hon. Member for Aberdeen, South (Mr. Sproat) is a full supporter of the Government's policy of non-intervention.

Mr. Wilson: I always enjoy a tussle with either of the hon. Members for Aberdeen, but far be it from me to come between them and trade punches on their behalf. I hope that during the debate they will have the chance to do that for themselves, for the ten-thousandth time.
Unless the Government take action, the prospects for Scotland will be dismal. Compared with what other small countries have been able to achieve, we have made no real attempt to cure our economic problems. I know that other hon. Members wish to speak and I shall throw out a few suggestions as quickly as I can.
First, I reiterate that the Government should try to develop a more encouraging economic climate in the areas that are most adversely affected by structural changes in industry or that face the greatest industrial difficulties. That is done in, for example, West Germany, where they have a far more decentralised economic system.
The Government should also increase regional incentives, through tax concessions, to make them more effective and to

get whatever limited proportion of mobile industry is available to come to Scotland and other areas facing serious problems. Also, as part of their regional policy the Government should consider the question of differential interest rates that can be applied in these areas. I know that there are technical difficulties with money supply and credit, but it should not be beyond the wit of the Treasury to frame a scheme that would help the development of industry in the public and private sectors in those areas that are affected.
In relation to the build-up for the future, the Government should consider what has been done in Alberta, Canada, to ensure that oil revenues are used for development rather than being frittered away on consumption. It is interesting to note that in Alberta, between 1976 and 1977, a capital oil development fund was set up under the Alberta Heritage Savings Trust Fund Act and an Appropriations Act, through which 30 per cent. of the oil and gas revenues go into a special fund to provide for future development. In the spring of 1979 that fund stood at £1,880 million—and that for a province of about 2 million people.
In the Scottish context, because of substantial oil production, the revenues this year will be in the region of £1,390 million, according to the Government's own estimates. The Government should think of ways of investing that money to ensure Scotland's future, and they should consider the advantage of high public expenditure in development areas.
If the Government go ahead with their public expenditure cuts it will be areas, such as Scotland, which have a high public input into the economy that will suffer substantially. The present course of action that the Government have adopted spells hardship and can lead to disaster. They are pursuing a doctrinaire course that can only harm the industrial infrastructure.
The Government have singled out certain areas for exemption from their cuts. One such area is defence. They should realise that the most important kind of defence is that of employment, the economy and industry. It is time that the Government realised that when it comes to choosing between the two it is far better, instead of putting extra funds


into defence, to put the money into industrial development, which will help the economy.
Many areas of Scotland which were prosperous 5, 10 or 15 years ago now have to battle for survival. I hope that the Government will listen to the arguments that have been advanced and give assistance to those who are engaged in that battle for survival and help them in their fight, rather than hinder them.

Mr. Iain Sproat: I do not want to follow the hon. Member for Dundee, East (Mr. Wilson) far down the peculiarly Scottish road he has pursued. I simply say three things to him. First, I do not believe that we can disentangle the so-called Scottish economy from the British economy. Secondly, it was quite clear at the last election that the electorate in Scotland entirely agreed with that view. Thirdly, the only way in which we can improve the economic climate in Scotland, which would at least be something that we all had in common, is by improving the economic climate in the United Kingdom as a whole. That is the aim at which this debate is primarily directed.
I want to direct my remarks to a different aspect—perhaps I should more properly say a different level—of debate than has taken place so far. It has been an extremely interesting debate, but I do not want to go into the arcane mechanics of the monetary system or the recondite intricacies of incomes policies as have other hon. Members. However, I welcome the chance to discuss, in general terms, the problems facing our economy, which is how the people outside the House see and discuss our present economic problems.
I particularly welcome this opportunity because I believe that it is essential that the British people should realise the truth about our economy. Unless they recognise and accept the truth, and accept that it is a sombre truth, they will not nerve themselves, and the Government will not be able to nerve them, to take the actions necessary or make the long-term sacrifices that must be made.
It is humiliating but necessary to admit that this country is poor and getting poorer, and that it is weak and getting weaker. We are getting weaker economically,

weaker militarily, and weaker in our ability to exercise influence or leverage over many parts of the world which provide a vital market for British exports and a vital source for British imports. To say that this country is weak and getting weaker is only half the sombre truth. The other half is that while we get weaker the world becomes more dangerous. For years we have been blind to the growing weakness of this country and blind to the growing strength of other countries.
I shall try to illustrate this gloomy proposition, not so much for hon. Members, because I think that even if the solutions that we propose differ greatly, at least we can agree about the gravity of the situation that now faces this country. I want to illustrate three facts that I hope will impinge themselves upon the imagination of those outside the House.
The first matter I want to deal with is the general level of prosperity in Great Britain. Although people outside the House may know it in their heads, they have not yet apprehended it with their minds, but the fact is that within the lifetime of everybody in this Chamber tonight we have seen this country fall from being the richest and strongest country in Europe to being almost the poorest.
I was struck by a story which my right hon. and learned Friend the Chancellor of the Exchequer recounted on television the other day. He said that he had been talking with his opposite number in West Germany who had apparently been the trade union organiser for one of the Ford plants in West Germany. This German official had come over to Ford of Dagenham 25 years ago and had seen that the standard of living of the Ford workers was more than double that of workers in Ford in West Germany. Recently, when he had to come over to see my right hon. and learned Friend, the position was exactly the reverse. The workers at Ford in Germany now have a standard of living double that of Ford workers at Dagenham. That is what we have to get over to the people. We are no longer playing. The right hon. Member for Heywood and Royton (Mr. Barnett), in his much-quoted article in The Guardian, used the phrase
We have no miracles left.
He was right. I hope that one of the subsidiary effects of this debate will be


to get over to the people the true gravity of the situation which we all face together.

Mr. Budgen: Is my hon. Friend arguing that a nation's greatness will be decided by the amount of consumer durables that its citizens have?

Mr. Sproat: No, I am not. If this debate was about the greatness of our country, I would make a different speech. It is about the economy of our country and, therefore, I am speaking of economic matters.
I turn to the question of productivity. I mentioned the West Germany case. It is surely a shameful and horrifying fact that the West Germans, with the same plant and the same number of men, can produce more than twice the number of similar cars that we can. Also, it is shameful that the Japanese production of steel should be six times per head the production of this country. If anyone says that that is just a difference in plant and investment, I can tell him that that is not so. We heard the other day from the chairman of the British Steel Corporation that the corporation had had higher investment over the last 10 years than any other steel corporation in the world. Despite this, we still have the lowest productivity. That is the sort of fact that we must face. In spite of all the warnings from Governments of both parties, the people of this country still have not realised or accepted the gravity of the situation.
I now turn to the question of industrial relations. I was very struck by a remark that was attributed to Helmut Schmidt the other day when he was asked what he considered to be the most important fact in West Germany's economic success during the last generation. He said that he attributed it to the fact that that country had a trade union movement that was "co-operative and constructive". Whatever else we may say about our trade union movement, we cannot claim that the words "co-operative and constructive" most readily spring to mind. The proof of this is the truly shocking comparison between the number of days lost through industrial disputes in all industry and services in this country and those lost in West Germany. In 1977, for every day lost in West Germany, 100

days were lost in this country. That is truly incredible. No wonder we cannot keep up the competitive edge over West Germany when the difference between days lost in industrial disputes is as great as 1 to 100.
We must consider the three facts that I have put before the House—the fact that within 25 years we have sunk from being the richest to almost the poorest country in Europe; the fact that our productivity levels are so miserably low compared with almost every other developed country; and the fact that our industrial relations are so bad that we lose 100 days for every day lost in West Germany. These facts alone should awaken the people of this country to the realisation that the Government's actions are absolutely vital. As the Chancellor said this afternoon, we do not have any alternative.
I wish to make one further comment on what I regard as an essential aspect of Conservative philosophy and practice. I refer to cuts in income tax. Before and during the last election, we Conservatives made great play of the need to cut income tax as one means of giving incentive to people to work harder. That was absolutely right. Because we made it such a big point then, we should not now forget about it. We should keep on emphasising it. I was concerned about reports that my right hon. and learned Friend was considering forgetting about income tax, at least for some years to come. I understand the need for capital tax cuts, which I hope we will get in the next Budget. However, I hope that my right hon. and learned Friend will realise that, although we may see the broad strategy of Conservative plans over the next five years, the fact is that this strategy, clear as it may be to us, is not always clear to people outside. They see things like the increase in the minimum lending rate and the increase in mortgage interest and they are blinded to what we are trying to do as a long-term objective.
Not only will there be occasions when our strategy is blown off course—[Interruption.] Laughter ill becomes Labour Members. Labour is the party which managed to double unemployment and double inflation. Hon. Members opposite cannot laugh about being blown off course.
I entirely agree with the action of my right hon. and learned Friend in raising the MLR because he had no other option. All I am saying is that it is essential for those in this country who are not economic experts to see that, in the midst of all else we are doing, there is a permanent signpost and a beacon of hope that shines out all the time. That is why I very much hope that even if it is very small—a penny or 2p or whatever—we will make another income tax cut in the next Budget in order to show people that we have a clear road along which we are marching.
Also, we must make it clear—

Mr. D. N. Campbell-Savours: rose—

Mr. Sproat: No, I am drawing to a close.
As I said, we must make it clear, with cuts in income tax, that it is worth while to work harder.
Also, we must not forget to emphasise that it is morally superior to have indirect taxation because that gives people the choice about how they spend their own money. Our method of taxation gives the ordinary people the right to decide how they will use their money and not how the Government will spend it for them.
Therefore, I hope that the people of this country, when they read of this debate, will understand the message of the gravity of the situation that we face and the knowledge that, although the cure that we are pursuing will not be quick, simple or painless, it must be followed. I hope that my right hon. Friends will stick with courage to the course they have charted.

Mr. R. B. Cant: I almost followed the hon. Member for Aberdeen, South (Mr. Sproat) until he got to the passage in which he began to talk about morals, and then I am afraid that I lost him. A number of my colleagues still wish to speak in this debate, therefore I intend to observe the 10-minute rule, so I hope that someone will tug at my coat if I go over my time.
I come back to the question of the money supply, although I know that the real world is the world that counts. There

has been so much nonsense talked about this that I would like to make a few brief comments. If this Government intend to attach so much importance to the money supply, they should at least define what they mean by that term. They have talked about M3 and M5, and now they are going back to the much narrower monetary-based system, no doubt following the United States, but not, I hope, with the same sort of calamitous results.
It is proper for my right hon. Friends to say that in the present circumstances the targets—way down to 4 per cent. to 7 per cent.—are ridiculous. We must take into account an element of inflation at a particular time, even if there is no growth in the economy. So, if the Government are to take this matter seriously, let us have realistic targets and a proper definition of the money supply.
I am in favour of a slightly higher public sector borrowing requirement, for the simple reason that we have moved into a dramatic world recession. My hon. Friend the Member for Motherwell and Wishaw (Dr. Bray) asked the Chancellor of the Exchequer whether he had read a certain Bank of England paper. The right hon. and learned Gentleman replied that he had, and he thought that it contained some funny ideas, or words to that effect. I agree with the Chancellor. But what is important about it is that it emphasises the very high personal savings ratio in this country, and there must be an allowance—pace the right hon. Member for Down, South (Mr. Powell)—for that high level of savings. As long as that continues, as it looks as though it will, it will be an automatic source of finance.
The second point made in that Bank of England paper is that in real terms the PBSR is declining. The third is the simple one that knowledge of these facts should be made more widely available in the City. The City is made up of people who worship totem poles. If they are not following one theory, it is another. We are ruled, even now, by those who write the stockbrokers' letters.
I believe that a wider knowledge of the facts would help enormously with the financing of the PSBR. This is criticial. Every year when my right hon. Friend the Member for Leeds, East (Mr. Healey)


was Chancellor, I wrote to him saying "You must talk to the City about the way in which annually or twice a year it holds you over a barrel. It goes through all the Duke of York nonsense, marching you up to the top of the interest rate hill until you have to give way."
If the Chancellor and the Bank of England had been willing on 29 October or 30 October to sell gilt-edged stock in the market, we should have avoided the 17 per cent. interest rate. There is a massive amount of psychology, bluff, blackmail—call it what we will—about getting the rate of interest up to the highest level.
It is important to make clear to the City that unless we reach an understanding about the financing of the PSBR the Labour Party will have to do something positive about the financial institutions, the pension funds and the insurance companies when we return to office. We can no longer permit them to buy property, secondhand equities and so on. Their function must be more positive.
I hate to wake the right hon. Member for Down, South, but I must say that he is wrong to state that only the level of the PSBR determines the level of the money supply. A non-Minister in the present Government admitted to me about midnight one night last week, when I was chivvying him about being an incompetent monetarist, that the Government had not really taken into account what the banks in this country were doing and that the real growth in money supply was taking place within the banking system. What is called the corset suddenly—presumably to the Treasury's surprise—burst asunder, in a metaphorical sense, and the Government said "We shall have to do something about the banks."
My right hon. Friend the Member for Battersea, North (Mr. Jay) is right to say that one can have financial power only with responsibility. Unless the banking system is prepared to return to the old rules of the game and, if the Government of the day want restraint on money creation, to accept that restraint rather than the pursuit of maximum profits, other things may happen to the banks—greater control, quantitative controls, physical controls and so on.
My final point—I think that I am doing rather well for time as I rush along—is that although the Government are dedicated to the control of the money supply they have not only let the banks get out of hand but, as so many of my right hon. and hon. Friends have said, they have removed exchange controls, because of a theory. They say "This will bring the pound down", forgetting that it is a petro-pound. They also say that because people in this country cannot work and create wealth, they will use the money to buy physical assets abroad and live on the income proceeds, as we did to a large extent in the 1930s.
The removal of exchange controls was a ridiculous thing to do at the moment when it was done. It was done then because all the stock markets of the world were scraping along the bottom. But last week OPEC funds were coming into this country in great volume, attracted by the rate of interest. The British-based multinationals, which now have the power to move their funds out, quite apart from the pension funds and so on, were moving those funds out in the expectation of a capital gain on a possible fall in the pound.
That was in addition to the fact, pointed out so well by my right hon. Friend the Member for Leeds, East, that we shall have a movement of money into this country which will make total nonsense of any attempt to define the money supply in a significant way. I do not mind fanatics, especially if, roughly speaking, they believe in what I believe in—that mechanical thing called money supply. But what I cannot tolerate is incompetent fanatics who, perhaps, give a good idea a bad name.

Mr. Deputy Speaker (Mr. Bernard Weatherill): Mr. John Browne.

Mr. Roy Hughes: On a point of order, Mr. Deputy Speaker. I do not wish to challenge your conduct of the debate, or Mr. Speaker's conduct of it, but I respectfully draw your attention to the fact that the Chair has now called seven Back Benchers from the Government side and only three from the principal Opposition Benches. Of those three, two were Privy Councillors, and all three believe in what might be described as orthodox economic


policies and ideas, which have not exactly reached the pinnacle of success over the past 30 years or so.
Do you not think, Mr. Deputy Speaker, that it is necessary at least to have a balance between Back Bench speakers on each side of the House? I know that it may be necessary to give the impression that the Labour Party is speaking with a united voice, but I can assure you that there are dissenting voices.

Mr. Michael McGuire: Further to that point of order, Mr. Deputy Speaker. I think that the problem is that we have had a one-for-one policy in calling hon. Members, but that that policy has been to the disadvantage of Labour Back Benchers. For example, after the Liberal spokesman, the hon. Member for Colne Valley (Mr. Wainwright), the next speaker was from the Government side. After the spokesman for the Scottish National Party, the hon. Member for Dundee, East (Mr. Wilson), the next speaker was another Conservative Member. Perhaps, Mr. Deputy Speaker, we could at least split the difference. If you call speakers from Opposition and minority Opposition parties—

Mr. J. Enoch Powell: rose—

Mr. McGuire: Perhaps the right hon. Gentleman will let me finish. In rising, he reminds me that we have heard speeches from representatives of three minority parties, and every time the following speaker has been a Conservative Member. I suggest, Mr Deputy Speaker, that we should have a better balance.

Mr. Deputy Speaker: As the House will understand, I have only just come into the Chair for the first time in this debate. I do not know what went on before. It is a long tradition of the House that the Chair calls hon. Members from either side alternately. Mr. Speaker does, of course, make careful efforts to ensure that any debate is well balanced. The question of who is called is a matter for the Chair. I think that the House understands that. In addition, further points of order take up the time of the debate.

Mr. Robert C. Brown: Further to that point of order, Mr. Deputy Speaker. Would it assist the Chair if I crossed the Floor and sat on the Conservative Benches?

Mrs. Elaine Kellett-Bowman: That would not help.

Mr. John Browne: It is clear that few right hon. or hon. Members would disagree with the fact that our economy is in an extremely bad and precarious state. Apart from balance of payments figures and inflation, the main point about the present sad state of affairs is that we do not just have inflation or recession alone; we have both of them together. We have stagflation. That makes it extremely difficult for any Chancellor of the Exchequer to combat either one as often the medicine that is good for curbing inflation increases the recession, and vice versa.
Before talking about the Government's policy, may I mention what I believe to be one of the key causes of the present inflation or stagflation, namely, that our industry is uncompetitive and unprofitable. It is uncompetitive in home and international markets. We are losing the share of the market in world markets that are themselves decreasing, and yet we have inflation.
Why are we so uncompetitive? First, it is because we have inbuilt overmanning at a time when there is large-scale State ownership of our industry. The aim of some businesses is now not so much to make profits but to create jobs—not profitable jobs, but simply jobs.
Secondly, there is an overvaluation of semi-skilled and unskilled work. This has caused differentials to be eroded and has provided a disincentive to become skilled or to do skilled work.
Thirdly, there has been an overconcentration on price when producing goods for our exports. We seem to ignore the importance of products designed to suit the market's needs, products built to correct standards, prompt delivery and after-sales service. We concentrate merely on cheap prices for our goods. We seem to feel that a falling pound is in fact aiding our exports. All that it is doing is providing an aspirin, while we ignore the main factors of the marketing mix. Certainly we sell some goods, but at a smaller and smaller return.
Basically this lack of productivity has been financed by inflation. What we have done is to produce 50p worth of effort and we have paid ourselves £1. Very soon we discover that the £1 that we have been

paid buys only 50p worth of goods. This inflation has been financed, in my opinion, by Government spending. Government spending, as we all know, is financed either from taxation, which is taxation against present and past earnings for work, or from Government borrowing, or a call on the future work of our children and grandchildren.
The key to putting the situation right, therefore, appears to me to be control of the money supply. If such control is to be effective in today's world of high inflation and high endemic inflation, where there is a psychological barrier and where inflation is part of the psychology of the nation, it will prove painful and unpopular.
The Government appear to be intent on beating inflation. It is difficult and it requires great courage in the long term, as was hinted at by the right hon. Member for Down, South (Mr. Powell). But it is a new deal that we are being offered. In other words, this is a turning point from the endemic inflation to an age of real money. It has been done, as we all know, by controlling the money supply aggregates, bringing them under control before actually reducing them. As my right hon. and learned Friend the Chancellor said, it would, in his view, be too dramatic and too drastic actually to cut the aggregates in one blow. The damage would have been even more unacceptable, as members of the Opposition have pointed out. It is difficult and unpopular, but I believe that it is being done and will continue to be done. It is right.
The next point is high interest rates, which are agonising for everybody with a mortgage or an overdraft. It is very unpopular. The Government are the first in my lifetime since inflation started who have had the courage to raise the effective rate of interest above the rate of inflation. In other words, there is a negative carry. Money has now, at last, a real return. I believe that it heralds an age of real money.
The Government also aim, as the third feature of their strategy, to encourage enterprise by restoring incentives, by changing the rules of capital taxation and by adapting taxation to encourage small and new businesses—those very businesses


whose cash flows are being drastically squeezed by the money supply cuts, high interest rates and the fact that the wages market is not yet a truly free market. There are large State employers forming monopolies. There are large monopolies in the unions bargaining with each other, and in between them private companies, especially small private companies, are being squeezed. And it is the small and new businesses which are the key to our survival as a developed nation.
The third incentive is this. By reducing taxation the Government hope to encourage savings and therefore investment. That is straight out of Keynes. It is not a fact that Keynes was anti-monetarist. Basically the Government's policy seems to have adapted an outdated Keynes to meet today's problems.
Many Members of the Opposition argue against the monetarist approach. However, other methods of controlling the economy, killing inflation and boosting enterprise have been tried and have failed. Some argue for a return to pre-war Keynesianism, or spending our way out of stagflation and lowering interest rates. However, they must surely remember that there have been changes since Keynes developed his theory. First, he wrote and designed his theory at a time of deep recession. But now we have, as the main problem, a problem of inflation.
The second big change since Keynes wrote his theory is the vast increase in State ownership, so that the free market that would have operated under Keynes no longer operates with large State ownership. Keynes's theories worked before the war. They worked in the United States under Kennedy. In both those times there really was a genuine free market and there was very little State ownership. But they have not worked in this country, where we now have very large State ownership and no genuine free market.
The third major change is that unemployment benefits are relatively enormously more generous than they were in Keynes's day, so that the great fear of Keynes, that when people were unemployed the multiplier would no longer operate, is no longer valid, because people receive money in their pockets, albeit that they are unemployed.
Surely, therefore, we should not judge Keynes out of context. He wrote for recession, and I believe that he would almost certainly have written very differently for today's world, where the main task is to beat inflation. Possibly he would have recommended cuts in Government spending and that interest rates should be pitched above the rate of inflation. I firmly believe that, were he alive today, Keynes would have agreed with the Government's present policy to cut rather than to increase Government expenditure; to have interest rates above the level of inflation rather than a subsidised lower interest rate; and to encourage investment in productive businesses in the private sector.
I therefore strongly support the Government's policy, which faces us with a reality, a reality that is both painful and unpopular but a reality that it is vital we face if we wish to have a chance of remaining a developed country. There is no viable alternative to the present Government's policy.
Therefore, I beg that the Government do not give in under pressure from Opposition Members, letters in the press and letters coming in the mail bag, and that they hold fast to this policy.

Mr. Robert C. Brown: The Government are fond of trying to give the House lessons in economics. Indeed, we have a Prime Minister who behaves like a headmistress. The only problem is that we have Billy Bunter as Chancellor of the Exchequer, and, like the original Bunter, the Chancellor seems to have problems in getting his sums right. Perhaps it is time that the Government learnt a few lessons about economics.
Like all bad pupils, the Government are bad listeners. They have never heeded the advice given to them by the Opposition and now, as a result, we are all paying a heavy price. But if the Government will not listen to us, perhaps they will listen to some facts instead.
The facts are that next year we shall have falling output and gross domestic product, a massive balance of payments deficit, inflation well into double figures, record interest and mortgage rates, a massive financial deficit in the industrial


and commercial sectors, falling investment and, perhaps worst of all, record post-war unemployment.
The tragedy, of course, is that all this is completely unnecessary. We had real economic growth last year despite a far from settled international climate. We had the beginnings of a co-ordinated approach to an industrial strategy in which all sides of industry were involved. Above all, we had the large potential benefits of North Sea assets.
What has happened to all this? The Treasury is talking about a 2 per cent. drop next year in our GDP. Are the Government aware that if this forecast proves to be accurate—and, of course, hon. Members know that the Treasury never gets its figures wrong—we shall have experienced the largest single drop in national output in any year since the 1930s, larger even than the contraction which followed the 1973 oil crisis?
Looking at these figures, anyone would think that we were about to enter an international recession of major proportions, but I am sure that hon. Members will have read the Treasury forecasts very closely and they will know that this is not so. They will know that next year's trade in manufactures in the United Kingdom markets will actually increase by 4 per cent. That is what the Treasury forecast says.
Hon. Members will agree that that is not indicative of international recession. The West German economy, according to the most recent reports from its Council of Economic Advisers, is expected to achieve growth of up to 3 per cent. next year. Do the West Germans inhabit a different international economy from us? The truth is, surely, that the Government's own economic policies are at the root of our present crisis. The Government are pursuing doctrinaire monetary and fiscal policies. In combination, these will undermine our economic prospects as a nation.
The Government have the effrontery to pretend that their policies are aimed at a reduction in the rate of inflation. Such a pretence would be laughable if it were not so serious. Far from acting to reduce inflation, the Government's policies have actually stimulated it at every turn. The Government have almost doubled VAT on many essential goods and services. They have abolished the Price Commission,

so giving free rein to monopoly corporations. They are forcing up council rents and rates, as well as charges for school meals and prescriptions. They are cutting financial support to the nationalised industries, leading to higher prices for essential services. They have raised interest rates to record levels, forcing up mortgages at the same time. Despite all this, the Chancellor seriously appears to believe that he is pursuing a counter-inflation policy. It can surely only be a matter of time before the little men in white coats come along to drag him from the House.
I make no apology for turning now to my own constituency. Latest figures show that 13,000 people were registered as unemployed in the city of Newcastle-upon-Tyne this month. This represents a male unemployment rate in the city of over 10 per cent. compared with figures of 6·3 per cent. for Great Britain as a whole and 9·5 per cent. for the Northern region. In certain areas of the city, unemployment rates are even higher. Newcastle is an inner city partnership area. In the inner city, male unemployment is 16 per cent. In the Scotswood ward of my constituency one in five men are out of work.
The most disturbing feature of unemployment in the city is the high level of unemployment among skilled craftsmen. The ratios of unemployed to unfilled vacancies in Tyneside among skilled engineering craftsmen are much higher than in the Northern region, which itself has higher ratios than the country as a whole. I want to give examples to show the situation on Tyneside. There are 13 men unemployed for every one vacancy for welders. The figures for machine tool operators are 39 men unemployed for every vacancy; for heavy goods drivers, 22 men unemployed for every vacancy; and for plumbers, 12 men unemployed for every vacancy. These figures make the point that it is virtually impossible for the less skilled man to find a job. There are 200 unskilled chasing every vacancy. In the case of women, the figure is 230.
I wish to examine how Government policy is affecting the city of Newcastle. We are suffering, like everyone else, the general effects of the slow-down in economic activity. If the level of unemployment nationally reaches 2 million, which


I have no reason to doubt will happen shortly, Newcastle will have 18,000 unemployed. This represents an unemployment rate of 15 per cent. for men. Our manufacturing industries are concentrated in the traditional engineering activities such as shipbuilding, power engineering and armaments. All these basic industries have been under considerable pressure in recent years, and they face a difficult future. Many of them depend on public expenditure.
At the moment, 1,600 engineering workers in the defence division of Vickers are anxiously awaiting decisions by the Government on new armaments orders—decisions which could have been taken months ago. Tomorrow, my hon. Friend the Member for Newcastle, Central (Mr. Cowans) and I will take a deputation to the Ministry of Defence to demand an answer about the contract for 77 Chieftain tanks, on which, as I have told the Prime Minister more than once in the House, a decision could have been taken months ago if there had been any sense of urgency in the Ministry.
The predicted future for Newcastle is clearly difficult—not only increasing unemployment and reduced incomes in an area where unemployment is already well above the national average but a remarkable and tragic waste of skilled human resources. A recent survey of skilled engineering workers who were made redundant by the Tress engineering company in my constituency shows the extent of this waste of trained and experienced men one year after the closure. A third of them were still without work of any kind; four out of 10 had been unemployed for more than six months; less than half had found jobs in the engineering industry. I have no doubt that a worse fate will face the 750 workers that Vickers has just paid off at the Scotswood works.
Having systematically attempted to destroy the basis for co-operation between the Government and trade unions—at national, industry and local level—the Government are now trying to pin the blame for their own economic failure on the organised trade union movement. I say on behalf of my union—I am a sponsored member of the General and Municipal Workers Union—that that attack will not succeed.
I am amazed at the forbearance of the TUC in recent months. It has continued to seek to reason with the Government, at a time when it has been subjected to the most appalling provocations. The Government have done everything in their power to try to destroy the basis upon which a constructive dialogue might have been built. They have abandoned all pretence at controlling prices. Instead, they have deliberately and cold-bloodedly forced inflation towards the 20 per cent. mark. They have set cash limits in the public sector which will mean a substantial cut in union members' living standards, including the undermining of the principle of comparable wages for comparable work—a principle which was achieved only this year under the Clegg awards.
The Government have made brutal cuts in public services which will hit the most needy in our society and force public service workers into the dole queue. They have placed jobs at risk by their announcement of the sale of public assets. They have introduced inflationary fiscal and monetary measures which will push up unemployment by at least 500,000 next year—at a time when the unions are rightly saying that unemployment must be the priority issue. Last but by no means least, they are about to embark on an attack on the fundamental legal freedom which unions fought for and won decades ago.
In the face of those provocations, the trade union movement is apparently expected to sit back and do nothing. Apparently, it is supposed to stand by while its members' living standards and job prospects are attacked, and to remain silent while the most vulnerable and needy groups suffer—all for the sake of tax cuts for the rich. When the unions protest and try to protect their membership, they are condemned by the Government as the cause of all our problems.
There is no more gross injustice in this country than that directed against organised working people. The Government are simply trying to divert attention from the weakness of British capital and the bankruptcy of their policies. I am confident that ordinary people in this country have begun to see through the Government's manoeuvres and when the time comes will refuse to pay for the Government-induced recession.
I take no pleasure in saying this, but things will get a lot worse before they get better. The Government have some lessons to learn, and they are determined to do it the hard way. They are trying to abdicate from responsibilities that no modern Government, least of all in this country, can in the end escape. They are offering us policies the final implications of which are frightening. To put it mildly, they scare the hell out of me.
I do not know whether the Government have fully considered the consequences of 2 million unemployed, for example. Do they understand the damage that will be done to the public's confidence in the ability of this House to manage the economic affairs of this country? People are already beginning to feel that things are getting out of control.
I urge the Government to reconsider their proposals before it is too late. Moderate Members of the Conservative Party should try to change the mind of their Prime Minister. She is leading this nation to the edge of an abyss, and I appeal to reasonable men to drag her back before it is too late.

Mr. Michael Morris: I hope that the hon. Member for Newcastle upon Tyne, West (Mr. Brown) will excuse me if I do not follow his line of argument. His only words that had a ring of truth were that the way ahead will be hard and difficult.
I wish to comment on two aspects of the Government's policy—the impact on the overseas trading account and the difference in local government and national Government cuts, a matter that I have raised with my right hon. Friend the Chief Secretary previously. I support the Government's broad strategy and understand the unacceptable reality of a 17 per cent. minimum lending rate. I recognise equally that it is better to be decisive and bold now than to let things drift for the future.
Like other hon. Members, I hope to be in the Chamber when we reach the new century. When we do, I suspect that we shall recognise that the bravest and best decision in the previous quarter century was that of the Chancellor to remove exchange controls. [Interruption.] Hon. Gentlemen may laugh, but not many of them will be here, and certainly

not the hon. Member for Grimsby (Mr. Mitchell).
One of the key aspects of the removal of exchange controls concerns international direct investment policy. There has been little research into whether that has a positive or an adverse effect on our economy, but research by Professor Dunning of Reading university supports the suspicion that I have long held, which is that the effect of British companies investing overseas is not adverse. Professor Dunning's work indicates that those companies would not have invested in the United Kingdom, and their overseas investment is therefore a net gain for the gross national product.
Even more interesting is the fact that the vast majority of the foreign companies which invest in the United Kingdom invest in technologically advanced industry. That is to the benefit of the country. Far from the cry of that investment taking food out of the mouths of our people, it is of major benefit to our economy, and therefore it should be supported and encouraged.
The removal of exchange control helps in that aim. I believe that the Government's strategy of removing exchange control and keeping the value of the pound relatively high is sound. It will help to depress inflation in the months ahead. However, I hope that the Government will not forget the importance of exports, particularly those on the non-oil account.
There is a danger that the success of our oil trading will hide the decline in the volume of exports. We should not say that positive oil exports make up for the heavy deficit of traditional exports. As my hon. Friend the Member for Winchester (Mr. Browne) said, for too long we have exported on a commodity basis rather than on value-added basis. British industry must recognise—as was discussed at the CBI conference—that we can export on a value-added basis if we set our minds to it.
The Government should not forget the importance of the export services to the private sector. It is farcical that there is greater delay in obtaining export credit than in getting an import licence. That is the wrong way round. Why was the ECGD included in the three-month recruitment ban and in the package of


cuts? Its trading account does not affect the public sector borrowing requirement, and the service is vital to small and growing exporters.
I should like to draw the attention of the House to the British Overseas Trade Board. I take issue with my hon. Friend the Member for Croydon, North-West (Mr. Taylor) on this matter. Those of us who have used the service over the years recognise the success of the board. There is an unhealthy degree of concentration of restriction on the board's operations. I hope that another look will be taken at the matter, remembering the need for speed of action and flexibility of approach in support of British exports. Although our exports were badly hit by the transport strike in the early part of the year and the engineering strike, we must never forget that exports are vital.
I should like to refer to the disparity of approach to cuts between local and central Government. In the first table in the public expenditure White Paper, it is revealed that over the past five years there has been a 10 per cent. cut in real terms in local government expenditure. I do not argue against that. The cut was made not before time. Local government may be the soft touch when it comes to making cuts. It is high time that my right hon. Friends took a grip on central Government expenditure.
The speeches of my right hon. Friend the Member for Taunton (Mr. du Cann) and the right hon. Member for Heywood and Royton (Mr. Barnett) were worthy of attention. My right hon. Friend is a past Chairman of the Public Accounts Committee and the right hon. Gentleman is the present Chairman. They both know only too well that whenever the PAC meets it is faced with wasteful expenditure by central Government that runs into tens of millions of pounds. It has already been suggested that the professional and executive register of the Manpower Services Commission should be wound up next week, and there have been a number of other suggestions. In a speech such as this, I am able to make only broad generalisations. I merely say that the cuts will continue. Indeed, they should continue. However, the focus of attention should increasingly move from local government to central Government expenditure.
Many suggestions have been made, and I have enjoyed listening to the majority of speeches. Britain's exports on the non-oil account are vital to the success of the economy. Everything depends on the Government remembering that exporting is not easy. It is one of the most difficult areas. Instead of cutting across the boards the Government should show a degree of sensitivity. Where need exists, cuts should not take place. I wish my right hon. Friends success in their efforts. Many hon. Members feel in their hearts that we have tried the other approaches and that they have been shown not to work. We now have an opportunity to move forward on to a new plane, and I wish the Government all success.

Mr. Michael McGuire: I have promised that I shall take about half the available time between now and the beginning of the Front Bench replies. The other half of that time will be given to a Conservative Member, should that hon. Member catch your eye, Mr. Deputy Speaker.
I am rather in the position of the Frenchman who apologised for writing a long letter to a friend. He said that he did not have the time to write him a short letter. I cannot be as succinct as I should like to be while trying to cover a great deal of ground.
I do not want to be considered an old man. I am often irritated by old men who fight battles of long ago. However, I am 53 years of age and I remember the bad old days. I say in a friendly fashion to Conservative Members that the factor that has transformed society in my time—I was born in the days of crushing poverty—has been wise public expenditure. I hear others talking about public expenditure as though it is a terrible curse that has been visited on Britain. I ask them to recall the days when the policy was one of little Government expenditure. They were days of crushing poverty for the majority.
I realise that only so much can be spent by central Government. That was the theme of my right hon. Friend the Member for Heywood and Royton (Mr. Barnett). He said that a Labour Government would not have tackled the problem in the manner adopted by the present Government. He said that a


Labour Government would not have taken from the needy to give to the greedy.
Comments have been made about the decline of our industrial competitiveness. I am not one who advocates that we should put a ring round Britain. We are an exporting nation. I do not agree with those who say that there would be no reaction from abroad if we imposed import restrictions. I do not accept that there would be no reciprocity, to our disadvantage. However, the time has come when we shall have to recognise that in many spheres of our industrial competitiveness there is no such thing as pure free trade.
Tonight's Adjournment debate is a consequence of what I am about to relate. I attended a meeting last week, with Conservative colleagues, of the all-party textile group. At that meeting we heard how the textile industry is battling with one hand tied behind its back. If ever there was an industry where one could say that its wounds were not self-inflicted, that industry is the textile industry. In industrial relations, in investment and in other aspects it has been a model. However, the Americans are now exporting subsidised, oil-based synthetic fibres to this country. Even were we able to produce such fibres without paying any wages, we could not compete.
I attended a meeting today with the executive of the National Union of Mineworkers. We were told of the subsidies paid to Continental steel producers using coking coal. For every £1 of coking coal subsidy paid in this country, £12 is paid in Germany, £15 in France and £25 in Belgium. How can it possibly be said that we are competing with those countries on fair and equal terms? The Government must take that on board.
Like most hon. Members, I hold constituency interviews and visit my constituency every week. Among ordinary people I find a genuine fear that, because of the fanaticism of the Government, we are about to go back to the bad old days that I have described. The Government have made a colossal blunder with the transport costs which they intend to inflict on ordinary people. The poor hospital facilities go over the heads of those who talk about the lack of hospitals. If we talk about housing problems and we and our relatives are housed, the issue is

way above our heads. When we realise the costs to be visited on ordinary people as a result of the Government's policy of reduced grants to local government, I think that the Government will find that they have stirred a hornets' nest that will not easily be quelled.
This week the Prime Minister introduced the question of political honours. What the people of this country long for is to give the Government the only political honour that is within their gift. When the next election comes, the people of this country will give the Government what in working men's language is called the gentle order of the boot. I wish it could happen tomorrow.

Mr. John Townend: I support the Government's policy. However, I think that everyone in the House regrets the need for a minimum lending rate of 17 per cent. There is no doubt about that regret, but we should remember why such a rate is necessary. Hon. Members will recall that the money supply figures were so bad in October because of the "British disease"—the disease of strikes. Public sector borrowing had gone up as a result of the computer strike and there is no doubt that in the private sector the engineering strike had put up the demand for bank overdrafts.
I think that we all accept that if MLR continues at the present rate for more than a short period it could do untold harm to private industry, particularly to small businesses, of which there are so many in my constituency. This is not because the cost of borrowing is so high. Taking into account inflation, the cost of borrowing is cheap. However, borrowing has a bad effect on the cash flow of those firms. I accept the interest rate leg of the Government's policy, but, if we accept that as the main plank of monetary policy, high interest rates will last for longer than industry can either accept or afford them. In addition, the higher mortgage rate will retard the Government's policy of expanding home ownership.
The manifesto commitment to reduce public expenditure must be put into operation urgently. In the public expenditure White Paper for 1980–81, methods of stabilising public expenditure are set out. If we decide to implement further cuts, I have three suggestions to


make. First, we must examine transfer payments and the indexation of social security benefits. We should deal with old-age pensioners separately. There may be a case for indexation of such pensions.
When much of industry is under pressure, and when, in less successful firms, wage increases can be as low as 5 per cent., it is wrong that those who are not in work should receive benefits related to a 17 per cent. rate of inflation. If something were done about that, not only would we reduce public expenditure but we should go further towards achieving the agreed policy of widening the gap between those who are in work and those who are out of work.
We must examine the indexation of public sector pensions. The Chancellor talked about changing the method of funding. We must consider whether we can afford the continuation of indexation for such a large section of the pension industry. We are in grave danger of hanging a millstone round the neck of the next generation. I have checked with insurance brokers. To fund an ordinary non-inflated pension scheme costs, on average, 12½ per cent. of wages. Private companies cannot have an inflation-proof scheme, because insurance companies will not gamble on the rate of inflation. In view of the record of the last few years, it is not unreasonable to assume a 10 per cent. inflation rate. At that rate the cost of an inflation-proof pension scheme would be about 40 per cent. of the wage bill.
I do not take too much notice of Treasury forecasts, and the Chancellor should perhaps change his view and not publish them so often. However, the Treasury forecasts that there is likely to be a £2,000 million balance of payments deficit next year. The Government are trying to reduce our subscription to the Common Market. They should also examine the £700 million that we pay in overseas aid. We should cut aid to countries that are Marxist or run by dictators. We should give aid only to our friends. A country that nationalises our assets, attacks our officials, insults our Foreign Secretary, or urges the mob to burn our high commission or flag, should not receive £33 million a year.
I cannot deal with all the arguments, because of the time restriction. However, wage settlements this winter are important.

I accept the Government's proposition that in the private sector wage settlements should be left to managements and unions to negotiate. The real problem is that the balance of power has changed. It is said that if management gives in to irresponsible claims unemployment and bankruptcies result. There could be so many bankruptcies that our whole industrial base could be undermined.
The right hon. Member for Leeds, East (Mr. Healey) was right to say that a manager faced with the choice of giving in to an irresponsible claim today and going bankrupt in 18 months' time, or fighting a strike and going bankrupt now, will take the soft option and give way. In our manifesto we said that we would restore the balance between the power of the trade unions and the power of management. During a strike the balance is nine to one, according to the CBI. A business can lose hundreds of thousands of pounds a week in lost profits, but a strike costs the trade unions little.
When the Chancellor of the Exchequer was questioned by Brian Walden on "Weekend World" about how he would restore the balance, I was disappointed that he did not mention making the trade unions more responsible for financing strikes. That was suggested in our manifesto and by the Prime Minister at Blackpool. I urge my right hon. and learned Friend the Chancellor to suggest to my right hon. Friend the Secretary of State for Employment that that provision should be brought in as a matter of urgency in time for this winter's wage round so that we can stiffen the resolve of employers to withstand irresponsible wage claims.
I am sorry that I have not been able to develop all of my arguments, but I shall conclude now as instructed.

Mr. Denzil Davies: As always with these economic debates, many important points have been made on both sides of the House. I am sure that the Chief Secretary will deal with them at length. However, there is one point upon which we wish to press him. It arose out of the speech of the right hon. Member for Taunton (Mr. du Cann), and it was taken up by my right hon. Friend the Member for Heywood and Royton (Mr. Barnett), who specifically asked the


Chief Secretary—and I now repeat that request—to make it quite clear that the Government do not favour abolishing the indexation of transfer payments, particularly retirement pensions.
My right hon. and hon. Friends and I gained the impression when the point was originally made that the Chief Secretary was nodding in agreement. I hope that the right hon. Gentleman will allay people's fears and make it clear that the Government have no intention of doing away with the law by which the retirement pension and other transfer payments are indexed to the cost of living.
This debate takes place against a sombre economic background. The rate of inflation is climbing rapidly and could well reach 20 per cent. Unemployment could eventually reach 2 million. Interest and mortagage rates are at a record high level, and output is likely to fall by up to 2 per cent. next year. The Government have got themselves into this appalling position primarily because the Tory Party went to the country in May on a false prospectus in the full knowledge that it was false.
Instead of making the fight against inflation the major priority, it went for the easy way out and promised cuts in income tax. However, it did so in the full knowledge that the resources were not available to sustain the cuts that it promised. The Prime Minister, the Chancellor and all the Central Office advisers must have known that at the time. To win the election, however, the facile promise was made. All the problems the Government face today arise from the attempt in the Budget to make good that false promise. The only way to make it good was to put up indirect taxation. That was done and the retail price index rose by 4 per cent.
Other measures in the Budget added an extra 3 per cent. to the RPI and a few months after the Budget inflation was reaching up to.20 per cent. instead of the 12 or 13 per cent. that would otherwise have been the case. A deliberate decision was taken to increase the RPI by 7 per cent. By abrogating their primary duty, in spite of everything they said in Opposition, to use all means to fight inflation, the Government made an increase in the MLR to 17 per cent. inevitable.
There is no magic about all this. The Conservatives talk about monetary policy and the need to fund the public sector borrowing requirement. If inflation is to run at 20 per cent., it is not possible for long to run the minimum lending rate at much below the same figure. The Chancellor was therefore forced to put up the MLR to 17 per cent. He increased it to 14 per cent. in the Budget and blamed Labour, but he cannot blame us for the second increase. The Government's fiscal and monetary policies were thrown out of balance as a result of the VAT increase and the cut in direct taxes, and that led to the rise in MLR.
If the Government had not cut direct taxes and had not put up indirect taxation, interest rates would not need now to be any higher than 12 or 13 per cent., because the underlying rate of inflation is about 1 per cent. a month.

Dr. Brian Mawhinney: In view of what the right hon. Gentleman has said, why did his Government not raise the MLR to about 25 per cent. when the rate of inflation at that time was almost 30 per cent.?

Mr. Davies: It was not at almost 30 per cent., but we tried to maintain interest rates as close as possible to the rate of inflation. No Government can adopt any other policy for long. It is remarkable that a party which in Opposition proclaimed its support so piously for the small business man, the entrepreneur and the innovator should so quickly deal massive blows to investment, initiative and innovation.
When the Labour Party was in Government it was constantly being lectured by the Tories about the damaging effects of high interest rates, especially for small businesses. The Chief Secretary made a very good speech that I have quoted before, but which I shall quote again. At that time he was the Opposition spokesman on small businesses. He said:
I turn now to the third piece of advice that I generously offer to the Treasury Bench. It concerns the question of interest rates. A minimum lending rate of 14 per cent. is not a rate which allows credit to perform its legitimate commercial function. It is much closer to usury. For many small businesses it means that rates of borrowing will have to be 17 per cent. or perhaps even more. That hits particularly at small businesses and also hits


innovative businesses.".—[Official Report, 13 February 1979; Vol. 962, c. 1078.]
Those rates of interest are 20 or 21 per cent. now. I know that the Chief Secretary takes a relaxed view of such things these days, and I am glad. However, he must come to the House and justify how he, with all his views, can be a member of a Government who have put up interest rates to 14 per cent. and now to 17 per cent. He cannot shrug off responsibility, after seven months in office, with that relaxed air of his.

Mr. Biffen: It is marriage.

Mr. Davies: I shall come to that in a moment.
The increase in mortgage interest rates to 15 per cent. was a direct result of that 17 per cent. increase in minimum lending rate. That increase, in turn, arose from the imbalance in the Government's fiscal monetary and financial policy.
During the summer the Prime Minister sent the permanent secretary to the Treasury to the leaders of the building societies to try to persuade them to keep down mortgage interest rates. Of course, they obliged for a few months. The Prime Minister was worried because under the touching heading of "Helping the family" one reads in the Tory manifesto:
The prospect of very high mortgage interest rates deters some people from buying their homes and the reality can cause acute difficulties to those who have done so. Mortgage rates have risen steeply because of the Government's financial mismanagement.
That statement was made at a time when mortgage interest rates were at 11¾ per cent. If that was financial mismanagement, how does the Chief Secretary describe mortgage rates at 15 per cent.? The effect of that rate is to wipe away any lingering benefit from the Chancellor's Budget. Indeed, there was not much benefit in the Budget. A person with a mortgage of £10,000 will now pay an extra £4 a week and a person with a mortgage of £15,000 will pay an extra £6 a week, even after tax relief.
In his opening speech the Chancellor said that he was trying to maintain the Budget strategy. However, his Budget strategy has gone because its basis was the provision of incentives and benefits. All those incentives and benefits have gone, except to those who earn £15,000

or more. That was the figure mentioned in the Financial Times today. At the time of the Budget we said £12,000, but the figure has gone up to £15,000.
The Government's policy was to increase the supply side of the economy, yet those who can do that—not the directors of top companies, but the skilled worker or middle manager in an engineering firm—get nothing from the Chancellor's Budget. The Chancellor knows that his Budget strategy has gone. Next year he will have to put up income tax if he wants to balance the books.
I turn to the question of wage assumptions and the present wage round. Treasury Ministers do not believe the present economic forecast. They prefer to believe the forecast from the London Business School. The Chancellor mentioned that forecast because it is less gloomy than the Treasury forecast. What assumptions were behind the inflation forecast in the Government's Industry Act assessments? What are the assumptions behind the 14 per cent. inflation rate predicted for a year from now? Were the wage assumptions 13 per cent. or 14 per cent., as the Chancellor has told us? If so, where did that figure come from?
I hope that the Chief Secretary will also tell us what he thinks of the present wage round which may end up at close to 20 per cent. Are the Government worried about that, or are we to be told again that high wage settlements do not have much effect on inflation? Since the Government took office, no Treasury Minister has said that high wage settlements cause inflation. I assume that the Government do not believe that a 20 per cent. wage round will have much effect on prices. The Government deliberately put up the RPI and increased inflation, and they will reap the whirlwind of high wage settlements that are bound to follow.
I hope that the Government will not try to make others the scapegoats for what has happened. I watched the recent Tory Party political broadcast which included a number of references to strikers, militants and trade unions. I hope that the Government do not try to make the trade union movement the scapegoats, because the Government must accept the main responsibility if the wage round comes out at 20 per cent., with inflation


also at 20 per cent., partly because of decisions taken in the Budget.
The Government do not believe that high wage settlements directly cause inflation. The Prime Minister has never said that. The Chancellor says that high wage settlements will cause bankruptcies and unemployment, but he does not mention inflation. I imagine that the Chief Secretary shares that view. I do not know what other Cabinet Ministers think they are silent at the moment. The Treasury view is clearly that high wage settlements do not directly cause inflation.
The Government are saying that the only way to reduce inflation is through their monetary policy, which means a gradual reduction in Government borrowing and the monetary aggregates. That is the pillar on which the Government's economic temple is built.
Let us inspect that pillar to see how firm it is. It seems to me that the pillar is a little shaky. A few holes are appearing in it. If the Government's one policy—controlling the monetary aggregates—fails, there will be no bulwark against inflation. The Chief Secretary said earlier this year, in relation to the policies being pursued by my right hon. Friend the Member for Leeds, East (Mr. Healey):
That is woefully misconceived, because the monetarism that is being pursued by the Chancellor of the Exchequer is based upon high public spending and massive borrowing … There is absolutely no way in which prudent financing of the national economy could proceed on a public sector borrowing requirement of £10 billion."—[Official Report, 13 February 1979; Vol. 962, c. 1079.]
Does the right hon. Gentleman still believe that? He has a public sector borrowing requirement of almost £10 billion this year. I know that the Government knock off £1 billion in the fiddle on the sale of public assets, but the PSBR this year is about £9·3 billion. The Government Deputy Chief Whip should not look askance. The Government have pretended that by selling public assets they are reducing the public sector borrowing requirement. In fact, they are merely funding it. In effect, the PSBR this year is £9·3 billion and I shall not be surprised if it is £10 billion next year. Is the Chief Secretary prepared to preside over a borrowing requirement of £10 billion or more? That clearly would be the position if it increases to £10 billion next year.
The Chief Secretary appears to have changed his views. In that speech he was firm, but I wonder what his position is now. Perhaps the air is very strong in the Treasury and things have changed. From a sedentary position he mentioned that he has got married, which is a kind of personal U-turn. I wonder whether we shall see an ideological U-turn. Will we see a PSBR of £10 billion next year? I think that we should be told. I appreciate the difficulty of forecasting the PSBR, but if one extrapolates from this year's PSBR and looks at the public expenditure White Paper, it is not possible on present figures to have a PSBR much lower than £10 billion.
If I were a monetarist I would be very worried, because if the Government believe that high borrowing causes inflation there is not much chance of the Government doing anything about inflation because their borrowing is very high at the moment. We do not subscribe to that view, but the Government do, and that is their only policy.
Some economists—indeed, the Government's chief economic adviser before he was appointed—provided the Government with what was a spurious, pseudo-intellectual cloak to mask this U-turn on the PSBR. In a report in the middle of the summer, the monetarist view was that a high PSBR was all right if it was caused by unemployment and by the recession. First, one puts people on the dole and then has to pay them unemployment benefit, and it is then all right to increase the PSBR for that purpose. That would seem to be the kind of thinking of the body from which the present chief economic adviser comes.
We cannot understand why it is right to have a high PSBR to keep people out of work and not to have a high PSBR to provide people with work. The PSBR will be £10 billion anyway, and we say that it is better for it to be £10 billion without the cuts in public expenditure that will create 300,000 unemployed, plus the 17 per cent. minimum lending rate which will create more unemployment, and to keep people in employment than have a £10 billion PSBR and almost 2 million people on the dole. We do not object, as my right hon. Friend the Member for Leeds, East said, to a high PSBR next year, but we do object to Government


policies that create unemployment and thereby inflate the PSBR.

Mr. Budgen: What about interest rates?

Mr. Davies: I have just explained that point. If the Government had not put up the RPI by 7 per cent., the level of interest would have been lower today. Because the Government got their fiscal and monetary policy completely out of kilter, we have a 17 per cent. MLR.
The other part of the Government's monetary policy is what is euphemistically called the control over the money supply. All that means is high interest rates. The Government do not have any other means of controlling the money supply. They are not physically controlling the money supply at all. At one time, at least one could use supplementary special deposits—the corset. It was not perfect, but at least it was some kind of physical control over the money supply. But the Chancellor foolishly and unnecessarily abolished exchange controls.
I do not know whether the Government thought of this or whether the Bank of England told the Chancellor. That meant that the supplementary special deposits scheme would not work. We had the pathetic sight of the Governor of the Bank of England asking foreign banks not to use their overseas foreign deposits to get round the money supply policy. That policy is based on high interest rates only and nothing else.
The abandonment of exchange controls also meant that the Government lost their captive market for gilt-edged securities. The Government had a captive market. At least pension funds and insurance companies had to buy Government stock at the end of the day. Now they have to go somewhere else. The Chancellor has lost that weapon for controlling the money supply and has nothing left except the interest rate policy—and who knows how that will work out?
I should like to quote from a publication entitled "International Currency Review". It is not published by the Tribune Group or by the Trades Union Congress. It is probably well to the Right of most Conservative Members. [HON. MEMBERS: "That is impossible."] I assure my hon. Friends that if they read the publication

they will see that it is actually possible to be to the Right of Government members. This is what it says at page 34 of the current issue:
The relaxation of exchange controls severely limits the freedom of the authorities to pursue an independent monetary policy—contrary to the presumed intention of Sir Geoffrey and his colleagues.
That comes from a magazine that specialises in financial matters.
I think that we are now agreed that the Government have abandoned all instruments to try to control the money supply except that of high interest rates. In another part of that article the writer asks
Why on earth is it that this Government is constantly making stupid but predictable mistakes?
We could all answer that, and perhaps the Chief Secretary will give us his answer when he winds up. By relying absolutely and uniquely on high interest rates and nothing else to bring down inflation, the Government have now got themselves into a difficult corner from which I do not think they will emerge. There is a massive credibility gap and a massive lack of confidence in the Government's ability to control the monetary aggregates. How can the Chancellor convince ordinary people that at the end of the day high interest rates bring down inflation? For most people high interest rates mean higher prices, higher hire-purchase payments, higher mortgage payments, more expensive overdrafts and greater costs in the shops because of increased costs of industrial production. How on earth can the Government convince ordinary people that high interest rates mean lower inflation when those people see quite the opposite?
Not only do the Government have to convince ordinary people; they must convince the professionals as well. They are not doing that. In tonight's Evening Standard it was reported that the Government did not sell much stock today. Why? Because those who look at these matters are not convinced that the Government have the right control of the monetary aggregates. Some people say that they should change the basis and have a different system. Others say that there should be physical controls. But at the moment the whole of the Government's policy is built on one aspect—high interest rates.
What will happen if the 17 per cent. MLR does not work? Will the Government come back to the House to announce an 18 per cent. bank rate? Or will it be 19 per cent., or even 20 per cent.? Is that all the Government have to offer? It seems to me that they have played nearly all their monetary cards. Interest charges cannot go up and up. They must stop somewhere. There must be some different policies.
Some people say that there may be a U-turn by the Government. I doubt whether there will be anything as elegant as that. It is more likely that the vehicle will career into the crash barrier and be towed away in the opposite direction. Whatever happens, the prospect for the next four years is that of a continual and debilitating, decline in the British economy with high inflation, low investment, high unemployment and high interest rates. Our manufacturing and industrial base will get narrower and narrower and at the end of the day we will be merely a nation of bankers and stockbrokers and little else. When this Government's stewardship—if it can be called that—comes to an end, remedies will have to be found that will be much more drastic than anything we have had to try before. We can only hope that by then it will not be too late.

The Chief Secretary to the Treasury (Mr. John Biffen): The speech of the right hon. Member for Llanelli (Mr. Davies) was characterised by a charming regard for my ideological purity and a total lack of presentation of any credible alternative to the Government's policy. It falls to me to wind up a debate that has been conducted with considerable acumen and cut and thrust but which at times has taken on the air of a university lecture. I have always thought that the House of Commons is better as a saloon bar than as a lecture chamber. I felt that this was particularly so in the discourse on monetarism presented by the right hon. Member for Battersea, North (Mr. Jay), which was formidable in its erudition.
As a number of things have been said about the so-called monetarist faith of the Treasury Bench, I must assert that I hold no doctorate in the theology of monetarism. I am not a fanatic—I say this

to the right hon. Member for Heywood and Royton (Mr. Barnett)—but I confess to being unsophisticated. I have a view, which perhaps derives from a rural childhood, that for Governments, no less than for individuals, it is good to live within one's means. I think that that is not a bad precept to carry through public life.
I turn to the economic debate today, in which the arguments have centred around four issues: first, the level and pattern of taxation secondly, the level and priorities of public spending thirdly, the present and prospective levels of Government borrowing and how it should be financed; and, finally, the methods that the Government are employing to liberalise the United Kingdom economy and to enable private wealth creation and ownership to develop. [Interruption.] Oh, yes. The current attacks reflect the six-month mind. They come from those who once were led by a leader who said that a week was a long time in politics. By contrast, we say clearly and unashamedly that our policies are conceived with far longer time scales than have been encompassed by many who have taken part in the debate.
The major attack has come from the Opposition Front Bench, and I should like to comment upon it. But I also respect the criticisms that have been made by what I broadly call the new Cambridge school, which I identify with the right hon. Member for Bristol, South-East (Mr. Benn), and by my right hon. and learned Friend the Member for Hexham (Mr. Rippon). I should like to deal with each in turn.
The official Opposition present a paradox for they are still chained to their recent perforfmance in Government. I suppose that many Labour Back Benchers see their Front Bench as being still the office-soiled Labour Establishment. Their experience has made those on the Labour Front Bench dispirited, erratic and uneasy adherents of qualified monetarism, and they are now anxious to disavow their former nostrum. The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) was the first to slip the leash, but it does not take long for an old tyke to follow a young tyke, and this afternoon we saw the right hon. Member for Leeds, East (Mr. Healey) doing his best to live down his recent past.
We know only too well what is the compound of Labour's policies—ambitious public spending, which was bequeathed to this Government. It would have required substantial increases in 1980 and 1981, and could have been financed only by substantial increases in direct or indirect taxation. But on taxation itself there is ambivalence; there is no championing of higher taxation. I reflect on the report in The Sun on 14 March this year in which the present Leader of the Opposition is said to have told a joint meeting of the Cabinet and his party's national executive committee:
If you want to retain power you have got to listen to what people—our people—say and what they want. And that is to pay less tax. They are more interested in that than in the Government giving money away in other directions.
This contradiction makes the Opposition singularly unimpressive in their attempts to develop a credible alternative strategy. Therefore, I do not feel disposed to accept the validity of their criticism.
Although the debate has been wide-ranging, the House did not have the opportunity to hear any representative of of what I call the new Cambridge school, although the hon. Member for Oldham, West (Mr. Meacher) kept watch loyally, but unluckily. The debate would be incomplete if we did not at least consider the arguments that have been deployed outside the Chamber—and inside it, but not today—that there should be an alternative strategy, based upon high public spending but including a high element of Government spending upon industry.
That is a policy that rests upon planning agreements and an extension of trade union power. It is a policy that rests upon import controls. Finally, it is a policy that rests upon price controls. However, here we come to a paradox, which was examined by the House this afternoon—the extent to which any economy, thus planned, could avoid the challenge of regulated and planned wages.
A number of Opposition Members raised the arguments for State supervision of collective bargaining, notably the right hon. Members for Heywood and Royton and for Battersea, North. I simply do not believe that we can have the new Cambridge solution without the planned control of incomes. That is a central

paradox within that approach which would split its supporters wide open. [HON. MEMBERS: "Why?"] I say that because I recently heard the hon. Member for Liverpool, Walton (Mr. Helfer) remonstrate most fiercely when his right hon. Friend advocated a form of incomes policy. Some of my hon. Friends have designated that policy as fortress Europe—or fortress Britain, I should say—but it is not really tenable. Britain must turn, face the world and be prepared to accept the challenge of industrial trade. That point was argued by my hon. Friend the Member for Northampton, South (Mr. Morris).

Mr. Healey: If the right hon. Gentleman is referring to fortress Europe as the definition of the new Cambridge school, which I think is rather limited—

Mr. Biffen: No.

Mr. Healey: May I make the point that the right hon. Member for Taunton (Mr. du Cann) came out in favour of this aspect of the new Cambridge school philosophy?

Mr. Biffen: My right hon. Friend the Member for Taunton (Mr. du Cann) will be able to deal with the misrepresentations of the right hon. Gentleman much more effectively direct than by using me as a proxy. I do not stand here as a proxy in a winding-up speech.
We believe that Britain should be prepared to reward commercial and industrial success. Therefore, I cannot accept the validity of the criticisms of the new Cambridge group.
Now, may I turn—

Mr. Healey: rose—

Mr. Biffen: I am not giving way.

Mr. Healey: rose—

Mr. Speaker: Order. It is quite clear that the Minister is not giving way. Therefore, he must be allowed to continue.

Mr. Biffen: Now I should like to refer to the points that were made about the policies of the Treasury Bench by my right hon. and learned Friend the Member for Hexham. He stated in a letter to The Times—

Mr. Healey: Answer the debate.

Mr. Biffen: If the right hon. Member for Leeds, East can contain himself, I shall link the remarks of my right hon. and learned Friend to the points that were made in the debate.
In his letter to The Times my right hon. and learned Friend stated:
Unfortunately, at present the so-called monetarists display an excessively mechanistic attitude which defies reason.
[Interruption.] It is unfair that my right hon. and learned Friend should be saddled with the applause of the Opposition, although the point was legitimately made by the hon. Member for Colne Valley (Mr. Wainwright) that there was an undue reliance upon money supply alone. That was also the view, seemingly, of the right hon. Member for Leeds, East, although I do not specifically attribute every point to the right hon. Gentleman.

Mr. Healey: On a point of order, Mr. Speaker. The right hon. Gentleman made a point of concern to you, I think—that he thought that it was right that he should deal only with points made in the debate. So far he has dealt only with points not made in the debate.

Mr. Biffen: I simply do not believe that it is in any sense a fair representation to say that the Government's economic policy is a monetary policy and little else besides. First, the tax system contains a deliberate policy of switching from direct to indirect taxation. Secondly, public spending is contained at last year's level and will continue stabilised in 1980–81. In its turn, it also contains a revised list of priorities in spending.
Perhaps I may say at this point how much I appreciated the points made by my right hon. Friend the Member for Taunton and my hon. Friend the Member for Croydon, North-West (Mr. Taylor) about the need for attention to public spending.

Mr. Denzil Davies: rose—

Mr. Biffen: Perhaps at this moment I may deal with the question of indexation of welfare benefits. I am accused of having nodded. Well, Homer nodded.

Mr. William Wilson: Only once.

Mr. Biffen: Only once. But I invite the House to consider this. Serious points were made from the Back Benches—and presumably Front Benchers are here to listen to Back Benchers—that there were certain areas of public spending which were not necessarily sacrosanct and above discussion. The point was made whether we could consider indexation to be for ever beyond the ambit of public debate. We find that, within that, my hon. Friend the Member for Bridlington (Mr. Townend) specified a distinction between retirement benefits and other benefits.
The right hon. Member for Llanelli is about to raise a sort of mini-sized Zinoviev letter as if my nodding approval that these matters could become a part of the public debate on public spending is somehow or other a Government commitment to de-index. He may be fishing for something or other, but I am not so naive that I shall let him land that tonight. Of course I nodded—and long may there be intelligent discussion of the elements of public spending in this House. If we have to watch every word we say, we shall be deserting the traditional functions of Parliament.
I say to my right hon. and learned Friend the Member for Hexham that we have policies to widen ownership, to create competition and to secure modest but valuable trade union reforms. I believe that they all sustain the important role fulfilled by monetary policy.
I know the points that are of central anxiety. They are concerned with the whole question of the present level of the minimum lending rate. I think that this derives from a borrowing requirement which remains formidably high, so much so that the relatively modest falling rocks of delayed Post Office and VAT payments could set in train the avalanche of a 17 per cent. MLR.

Mr. Denzil Davies: Is the right hon. Gentleman's view still the same as it was in February—that a £10 billion PSBR next year would be economically disastrous?

Mr. Biffen: I shall consider it in whatever terms, but of course it is a figure that must be adjusted in real terms. I am sure that the right hon. Gentleman will appreciate that.

Mr. Denzil Davies: So it would be higher than £10 billion?

Mr. Biffen: No, the right hon. Gentleman cannot now wriggle away from an answer that he happens to find disappointing.
The right hon. Member for Down, South (Mr. Powell) and my hon. Friend the Member for Horsham and Crawley (Mr. Hordern) have it absolutely right in saying that Government borrowing has become the victim of its own size. That is a challenge to these Benches and the present Government. But, of course, borrowing is the product and balance of revenue and spending.
My right hon. and learned Friend the Member for Hexham also commented in our debate on 13 June that he looked forward to a maximum rate of tax of 50p in the pound on both earned and unearned income and, in due course, a standard rate of 25p in the pound. That is a heroic ambition. Let us be clear that if borrowing requirement has to be a major priority, all these things have to be put in a very austere perspective.

Mr. Geoffrey Rippon: I suggest to my right hon. Friend that tax rates are not a central issue when one is talking about the minimum lending rate. Will he say, for example, by how much the cost of servicing the public debt will go up as a result of the higher interest rate?

Mr. Biffen: I cannot give an immediate and specific answer. [HON. MEMBERS: "Why not?"] I do not carry such a figure in my head. But I tell my right hon. and learned Friend this. The borrowing requirement is central to the rate of interest that has to be charged to enable the Government to fulfil their commitment.
I always wish to be good-natured in politics. There was a point in the letter of my right hon. and learned Friend which struck a chord with me. He said:
My own instinct is that if we had no more statistics than Gladstone possessed, we would be better informed".
Although I do not have quite such a severe view of those who provide the Government with their forecasts and statistics, I think it is a useful reminder that monetarism is not going to be crucified on a cross of statistics. The point made by the right hon. Member for Down, South was that it was literally

impossible to demonstrate the kind of mechanistic relationship that so many people seek in this sphere. We have to realise that when we come to judge this policy, and we have to realise that when we pursue it through what will undoubtedly be difficult political periods ahead. There is a variety of evidence, it seems to me, on the basis of the work of the London Business School, to give encouragement, as my right hon. and learned Friend the Chancellor suggested, to the belief that there would be an improvement in the economy in due Course.

Mr. Giles Radice: 1982.

Mr. Biffen: The cry comes "1982". I am in no position to challenge that. Anyone who believes that he can stand at this Dispatch Box and argue that there will be instant and early remedies and recovery is saying false. This might as well be stated now. A great deal of politics is about creating public expectation. We live in a more unreal world here, it it seems to me, than at times I can ever believe.
We need to have faith in settled policies and a determination to fulfil them. [HON. MEMBERS: "Faith?"] Yes, faith. I therefore welcome the speech of my hon. Friend the Member for Winchester (Mr. Browne) with his admonition of "Hold fast". That is precisely the situation in which we find ourselves. No one on the Treasury Bench supposes that the coming months or, indeed, the medium-term future will be without serious economic difficulties. The essential challenge is to devise a realistic strategy for a Parliament and not to be deflected by short-term tactical difficulties and reversals.
The strategy of this Government centres upon the concepts of realism and freedom. It is our resolve that public spending shall be related to a more realistic concept of what the economy can bear. Therefore, we rejected the spending plans we inherited. Such plans had been based upon a facile and absurdly optimistic view of likely growth in the economy.
Secondly, we believe that sheer realism requires a re-ordering of spending priorities so that greater attention is paid to the prime and unavoidable protective


functions of the State—namely, defence and the maintenance of law and order at home.
Realism and a sense of equity have prompted the taxation reforms of my right hon. and learned Friend the Chancellor of the Exchequer. A significant move has been made in a switch away from "taxation-as-you-can" and towards "taxation-as-you-spend". Spending taxes are the most effective way of raising revenue from the so-called black economy. Only those who live in the more refined element of the Hampstead lilac establishment can doubt that such a black economy is substantial and flourishing.
I turn for a moment to the twin theme of freedom. The opportunity that my right hon. Friend the Secretary of State for the Environment seeks to provide for council tenants to become home owners is a testimony to this. Then there are the plans to break the State's stranglehold—

Mr. Healey: Answer the debate.

Mr. Biffen: —on the ownership of British Airways, the National Freight Corporation and British Aerospace. This offers the opportunity of a wider spread of ownership and an ownership that will not be tainted by political considerations.
Meanwhile, this debate has inevitably dwelt upon the profound difficulties of a 17 per cent. minimum lending rate. I do not underrate these problems. Debt interest alone becomes a major factor in the budgets of Government and home owner alike. Further, I do not underestimate the difficulties created by high interest rates for private business, and particularly smaller businesses.
However, the analysis of the circumstances of 17 per cent. MLR point to a central remedy. Over the years the Government have become a powerful borrower, and unless politicians are going to conscript savings there must be either reductions in public spending plans or increases in taxation, or both. There can be no doubt about our priority. We have reduced the public spending ambitions that we inherited from the Labour Government,

and my right hon. Friend the Prime Minister will travel to Dublin to secure equity and justice in Britain's more than generous net contribution to the European Community budget. She will have the good will of the entire House in that endeavour.
I appreciate that many of my hon. Friends believe that, over the coming years, further savings can be secured in domestic public spending. These considerations will bear upon the borrowing requirement and the level of interest. The Treasury Bench recognises that high interest rates are a parody of monetarism. The monetary policy that we seek is one in which public spending, taxation and Government borrowing are so balanced that interest rates are struck at a level that enables credit to fulfil its traditional role.
I say to the right hon. Member for Llanelli that I remain totally unrepentant of the views that I have held previously and that the reduction of MLR is a major objective of Government policy. [HON. MEMBERS: "When?"] The parrot cry "When?" merely shows either a lack of understanding of or a total disinterest in the nature of the economic problems that face this country.
We shall pursue that policy not with dogmatism but with dedication; we shall pursue that policy believing that the principle of rewarding success should be the hallmark of our taxation proposals; and we shall pursue that policy believing that economic reality and economic freedom will give the British people a chance to repossess their influence in the world.
Above all, we shall pursue that policy knowing that it will be years rather than months that will vindicate our faith. To that end we shall be inspired by the words of Sir Francis Drake, as valid today as 400 years ago:
Every great venture must have a beginning, but it is the continuing of the same until the end, until it be thoroughly finished, which yields the true glory.
[interruption.] It is only those who have little faith in their party, in themselves or in their country who can sneer at those sentiments.

Question put, That the amendment be made:—

The House divided: Ayes, 257, Noes, 311.

Division No. 115]
AYES
[10 pm


Adams, Allen
Fletcher, Ted (Darlington)
Meacher, Michael


Allaun, Frank
Foot, Rt Hon Michael
Mellish, Rt Hon Robert


Alton, David
Ford, Ben
Mikardo, Ian


Anderson, Donald
Forrester, John
Millan, Rt Hon Bruce


Archer, Rt Hon Peter
Foster, Derek
Miller, Dr M. S. (East Kilbride)


Armstrong, Rt Hon Ernest
Foulkes, George
Mitchell, Austin (Grimsby)


Ashley, Rt Hon Jack
Fraser, John (Lambeth, Norwood)
Mitchell, R. C. (Soton, Itchen)


Ashton, Joe
Freeson, Rt Hon Reginald
Morris, Rt Hon Alfred (Wythenshawe)


Atkinson, Norman (H'gey, Tott'ham)
Garrett, John (Norwich S)
Morris, Rt Hon Charles (Openshaw)


Bagler, Gordon A. T.
Garrett, W. E (Wallsend)
Morris, Rt Hon John (Aberavon)


Barnett, Guy (Greenwich)
Gilbert, Rt Hon Dr John
Morton, George


Barnett, Rt Hon Joel (Heywood)
Ginsburg, David
Moyle, Rt Hon Roland


Beith, A. J.
Golding, John
Mulley, Rt Hon Frederick


Benn, Rt Hon Anthony Wedgwood
Gourlay, Harry
Newens, Stanley


Bennett, Andrew (Stockport N)
Grant, George (Morpeth)
Oakes, Rt Hon Gordon


Bidwell, Sydney
Grant, John (Islington C)
Ogden, Eric


Booth, Rt Hon Albert
Hamilton, James (Bothwell)
O'Halloran, Michael


Boothroyd, Miss Betty
Hamilton, W. W. (Central Fife)
O'Neill, Martin


Bottomley, Rt Hon Arthur (M'brough)
Hardy, Peter
Owen, Rt Hon Dr David


Bradley, Tom
Harrison, Rt Hon Walter
Palmer, Arthur


Bray, Dr Jeremy
Hart, Rt Hon Dame Judith
Park, George


Brown, Hugh D. (Provan)
Hattersley, Rt Hon Roy
Parker, John


Brown, Robert C. (Newcastle W)
Haynes, Frank
Parry, Robert


Brown, Ron (Edinburgh, Leith)
Healey, Rt Hon Denis
Penhaligon, David


Buchan, Norman
Heffer, Eric S.
Powell, Raymond (Ogmore)


Callaghan, Fit Hon J. (Cardiff SE)
Hogg, Norman (E Dunbartonshire)
Prescott, John


Callaghan, Jim (Middleton &amp; P)
Holland, Stuart (L'beth, Vauxhall)
Price, Christopher (Lewisham West)


Campbell, Ian
Home Robertson, John
Race, Reg


Campbell-Savours, Dale
Homewood, William
Radice, Giles


Canavan, Dennis
Hooley, Frank
Rees, Rt Hon Merlyn (Leeds South)


Cant, R. B.
Horam, John
Richardson, Miss Jo


Carmichael, Neil
Howells, Geraint
Roberts, Albert (Normanton)


Carter-Jones, Lewis
Huckfield, Les
Roberts, Allan (Bootle)


Clark, Dr David (South Shields)
Hudson Davies, Gwilym Ednyfed
Roberts, Ernest (Hackney North)


Cocks, Rt Hon Michael (Bristol S)
Hughes, Mark (Durham)
Roberts, Gwilym (Cannock)


Cohen, Stanley
Hughes, Robert (Aberdeen North)
Robertson, George


Coleman, Donald
Hughes, Roy (Newport)
Robinson, Geoffrey (Coventry NW)


Concannon, Rt Hon J. D.
Janner, Hon Greville
Rodgers, Rt Hon William


Conlan, Bernard
Jay, Rt Hon Douglas
Rooker, J. W.


Cook, Robin F.
John, Brynmor
Ross, Ernest (Dundee West)


Cowans, Harry
Johnson, James (Hull West)
Ross, Stephen (Isle of Wight)


Craigen, J. M. (Glasgow, Maryhill)
Johnson, Walter (Derby South)
Rowlands, Ted


Crowther, J. S.
Johnston, Russell (Inverness)
Ryman, John


Cryer, Bob
Jones, Rt Hon Alec (Rhondda)
Sandelson, Neville


Cunliffe, Lawrence
Jones, Barry (East Flint)
Sever, John


Cunningham, George (Islington S)
Jones, Dan (Burnley)
Sheerman, Barry


Cunningham, Dr John (Whitehaven)
Kaufman, Rt Hon Gerald
Sheldon, Rt Hon Robert (A'ton-u-L)


Dalyell, Tarn
Kilroy-Silk, Robert
Shore, Rt Hon Peter (Step and Pop)


Davidson, Arthur
Kinnock, Neil
Short, Mrs Renée


Davies, Rt Hon Denzil (Llanelli)
Lambie, David
Silkin, Rt Hon John (Deptford)


Davies, Ifor (Gower)
Lamborn, Harry
Silkin, Rt Hon S. C. (Dulwich)


Davis, Clinton (Hackney Central)
Lamond, James
Silverman, Julius


Davis, Terry (B'rm'ham, Stechford)
Leadbitter, Ted
Skinner, Dennis


Deakins, Eric
Leighton, Ronald
Smith, Rt Hon J. (North Lanarkshire)


Dempsey, James
Lestor, Miss Joan (Eton &amp; Slough)
Snape, Peter


Dewar, Donald
Lewis, Ron (Carlisle)
Soley, Clive


Dixon, Donald
Litherland, Robert
Spearing, Nigel


Dobson, Frank
Lofthouse, Geoffrey
Spriggs, Leslie


Dormand, Jack
Lyell, Nicholas
Stallard, A. W.


Douglas, Dick
Lyons, Edward (Bradford West)
Steel, Rt Hon David


Douglas-Mann, Bruce
McCartney, Hugh
Stewart, Rt Hon Donald (W Isles)


Dubs, Alfred
McDonald, Dr Oonagh
Stoddart, David


Duffy, A. E. P.
McElhone, Frank
Stott, Roger


Dunn, James A. (Liverpool, Kirkdale)
McGuire, Michael (Ince)
Strang, Gavin


Dunnett, Jack
McKay, Allen (Penistone)
Straw, Jack


Dunwoody, Mrs. Gwyneth
McKelvey, William
Summerskill, Hon Dr Shirley


Eadie, Alex
MacKenzie, Rt Hon Gregor
Taylor, Mrs Ann (Bolton West)


Eastham, Ken
Maclennan, Robert
Thomas, Dafydd (Merioneth)


Edwards, Robert (Wolv SE)
McMillan, Tom (Glasgow, Central)
Thomas, Jeffrey (Abertillery)


Ellis, Raymond (NE Derbyshire)
McNally, Thomas
Thomas, Mike (Newcastle East)


Ellis, Tom (Wrexham)
McWilliam, John
Thomas, Dr Roger (Carmarthen)


English, Michael
Magee, Bryan
Thorne, Stan (Preston South)


Ennals, Rt Hon David
Marks, Kenneth
Tilley, John


Evans, Ioan (Aberdare)
Marshall, David (Gl'sgow, Shettles'n)
Torney, Tom


Ewing, Harry
Marshall, Dr Edmund (Goole)
Urwin, Rt Hon Tom


Field, Frank
Marshall, Jim (Leicester South)
Varley, Rt Hon Eric G.


Fitch, Alan
Martin, Michael (Gl'gow, Springb'rn)
Wainwright, Edwin (Dearne Valley)


Flannery, Martin
Maxton, John
Wainwright, Richard (Colne Valley)


Fletcher, L. R. (Ilkeston)
Maynard, Miss Joan
Walker, Rt Hon Harold (Doncaster)




Watkins, David
Wigley, Dafydd
Woodall, Alec


Weetch, Ken
Willey, Rt Hon Frederick
Woolmer, Kenneth


Wellbeloved, James
Williams, Rt Hon Alan (Swansea W)
Wrigglesworth, Ian


Welsh, Michael
Williams, Sir Thomas (Warrington)
Young, David (Bolton East)


White, Frank R. (Bury &amp; Radcliffe)
Wilson, Gordon (Dundee East)



White, James (Glasgow, Pollok)
Wilson, Rt Hon Sir Harold (Huyton)
TELLERS FOR THE AYES:


Whitehead, Phillip
Wilson, William (Coventry SE)
Mr. John Evans and


Whitlock, William
Winnick, David
Mr. Ted Graham.




NOES


Adley, Robert
Edwards, Rt Hon N. (Pembroke)
Kitson, Sir Timothy


Alexander, Richard
Eggar, Timothy
Knox, David


Alison, Michael
Elliott, Sir William
Lamont, Norman


Amery, Rt Hon Julian
Emery, Peter
Lang, Ian


Ancram, Michael
Eyre, Reginald
Langford-Holt, Sir John


Arnold, Tom
Fairbairn, Nicholas
Latham, Michael


Aspinwall, Jack
Fairgrieve, Russell
Lawrence, Ivan


Atkins, Rt Hon H. (Spelthorne)
Faith, Mrs Sheila
Lawson, Nigel


Atkins, Robert (Preston North)
Farr, John
Lee, John


Atkinson, David (B'mouth East)
Fell, Anthony
Lennox-Boyd, Hon Mark


Baker, Nicholas (North Dorset)
Fenner, Mrs Peggy
Lester, Jim (Beeston)


Beaumont-Dark, Anthony
Fisher, Sir Nigel
Lewis, Kenneth (Rutland)


Bell, Ronald
Fletcher, Alexander (Edinburgh N)
Lloyd, Ian (Havant &amp; Waterloo)


Bendall, Vivian
Fletcher-Cooke, Charles
Lloyd, Peter (Fareham)


Bennett, Sir Frederic (Torbay)
Fookes, Miss Janet
Loveridge, John


Benyon, Thomas (Abingdon)
Forman, Nigel
Luce, Richard


Benyon, W. (Buckingham)
Fowler, Rt Hon Norman
Lyell, Nicholas


Best, Keith
Fox, Marcus
McAdden, Sir Stephen


Bevan, David Gilroy
Fraser, Peter (South Angus)
McCrindle, Robert


Biffen, Rt Hon John
Fry, Peter
McCusker, H.


Biggs-Davison, John
Galbraith, Hon T. G. D.
Macfarlane, Neil


Blackburn, John
Gardiner, George (Reigate)
MacGregor, John


Body, Richard
Gardner, Edward (South Fylde)
MacKay, John (Argyll)


Bonsor, Sir Nicholas
Garel-Jones, Tristan
McNair-Wilson, Michael (Newbury)


Boscawen, Hon Robert
Gilmour, Rt Hon Sir Ian
McNair-Wilson, Patrick (New Forest


Bottomley, Peter (Woolwich West)
Glyn, Dr Alan
McQuarrie, Albert


Bowden, Andrew
Goodhew, Victor
Madel, David


Boyson, Dr Rhodes
Goodlad, Alastair
Major, John


Bradford, Rev. R.
Gorst, John
Marland, Paul


Braine, Sir Bernard
Gow, Ian
Marlow, Tony


Bright, Graham
Gower, Sir Raymond
Marshall, Michael (Arundel)


Brinton, Tim
Grant, Anthony (Harrow C)
Mather, Carol


Brittan, Leon
Gray, Hamish
Maude, Rt Hon Angus


Brocklebank-Fowler, Christopher
Greenway, Harry
Mawby, Ray


Brooke, Hon Peter
Grieve, Percy
Mawhinney, Dr Brian


Brotherton, Michael
Griffiths, Peter (Portsmouth N)
Maxwell-Hyslop, Robin


Brown, Michael (Brigg &amp; Sc'thorpe)
Grylls, Michael
Mayhew, Patrick


Browne, John (Winchester)
Gummer, John Selwyn
Mellor, David


Bruce-Gardyne, John
Hamilton, Hon Archie (Eps'm&amp;Ew'll)
Meyer, Sir Anthony


Buchanan-Smith, Hon Alick
Hamilton, Michael (Salisbury)
Miller, Hal (Bromsgrove &amp; Redditch)


Buck, Antony
Hampson, Dr Keith
Mills, Iain (Meriden)


Budgen, Nick
Hannam, John
Mills, Peter (West Devon)


Bulmer, Esmond
Haselhurst, Alan
Miscampbell, Norman


Burden, F. A.
Hastings, Stephen
Mitchell, David (Basingstoke)


Butcher, John
Havers, Rt Hon Sir Michael
Moate, Roger


Butler, Hon Adam
Hawksley, Warren
Molyneux, James


Cadbury, Jocelyn
Hayhoe, Barney
Monro, Hector


Carlisle, John (Luton West)
Heath, Rt Hon Edward
Montgomery, Fergus


Carlisle, Kenneth (Lincoln)
Heddle, John
Moore, John


Carlisle, Rt Hon Mark (Runcorn)
Henderson, Barry
Morgan, Geraint


Chalker, Mrs. Lynda
Heseltine, Rt Hon Michael
Morris, Michael (Northampton, Sth)


Channon, Paul
Hicks, Robert
Morrison, Hon Charles (Devizes)


Chapman, Sydney
Higgins, Rt Hon Terence L.
Morrison, Hon Peter (City of Chester)


Churchill, W. S.
Hill, James
Mudd, David


Clark, Hon Alan (Plymouth, Sutton)
Hogg, Hon Douglas (Grantham)
Murphy, Christopher


Clark, Dr William (Croydon South)
Holland, Philip (Carlton)
Myles, David


Clarke, Kenneth (Rushcliffe)
Hooson, Tom
Neale, Gerrard


Clegg, Walter
Hordern, Peter
Needham, Richard


Cockeram, Eric
Howe, Rt Hon Sir Geoffrey
Nelson, Anthony


Colvin, Michael
Howell, Rt Hon David (Guildford)
Neubert, Michael


Cope, John
Howell, Ralph (North Norfolk)
Newton, Tony


Cormack, Patrick
Hunt, David (Wirral)
Normanton, Tom


Corrie, John
Hunt, John (Ravensbourne)
Onslow, Cranley


Costain, A. P.
Hurd, Hon Douglas
Oppenheim, Rt Hon Mrs Sally


Cranborne, Viscount
Irving, Charles (Cheltenham)
Osborn, John


Critchley, Julian
Jenkin, Rt Hon Patrick
Page, John (Harrow, West)


Crouch, David
Johnson Smith, Geoffrey
Page, Rt Hon R. Graham (Crosby)


Dorrell, Stephen
Jopling, Rt Hon Michael
Parkinson, Cecil


Douglas-Hamilton, Lord James
Joseph, Rt Hon Sir Keith
Parris, Matthew


Dover, Denshore
Kaberry, Sir Donald
Patten, Christopher (Bath)


du Cann, Rt Hon Edward
Kellett-Bowman, Mrs Elaine
Patten, John (Oxford)


Dunn, Robert (Dartlord)
Kershaw, Anthony
Pattie, Geoffrey


Durant, Tony
Kimball, Marcus
Pawsey, James


Eden, Rt Hon Sir John
King, Rt Hon Tom
Percival, Sir Ian







Peyton, Rl Hon John
Silvester, Fred
van Straubenzee, W. R.


Pink, R. Bonner
Sims, Roger
Vaughan, Dr Gerard


Pollock, Alexander
Skeet, T. H. H.
Viggers, Peter


Porter, George
Smith, Dudley (War. and Leam'ton)
Waddington, David


Powell, Rt Hon J. Enoch (S Down)
Speed, Keith
Wakeham, John


Prentice, Rt Hon Reg
Speller, Tony
Waldegrave, Hon William


Price, David (Eastleigh)
Spence, John
Walker, Rt Hon Peter (Worcester)


Prior, Rt Hon James
Spicer, Jim (West Dorset)
Walker, Bill (Perth &amp; E Perthshire)


Proctor, K. Harvey
Sproat, Iain
Walker-Smith, Rt Hon Sir Derek


Pym, Rt Hon Francis
Squire, Robin
Wall, Patrick


Raison, Timothy
Stainton, Keith
Waller, Gary


Rathbone, Tim
Stanbrook, Ivor
Walters, Dennis


Rees, Peter (Dover and Deal)
Stanley, John
Ward, John


Rees-Davies, W. R.
Steen, Anthony
Warren, Kenneth


Renton, Tim
Stevens, Martin
Watson, John


Rhodes James, Robert
Stewart, Ian (Hitchin)
Wells, Bowen (Hert'rd &amp; Stev'nage)


Rhys Williams, Sir Brandon
Stewart, John (East Renfrewshire)
Wells, John (Maidstone)


Ridley, Hon Nicholas
Stradling Thomas, J.
Wheeler, John


Ridsdale, Julian
Tapsell, Peter
Whitelaw, Rt Hon William


Rifkind, Malcolm
Taylor, Robert (Croydon NW)
Whitney, Raymond


Rippon, Rt Hon Geoffrey
Tebbit, Norman
Wickenden, Keith


Roberts, Michael (Cardiff NW)
Temple-Morris, Peter
Wiggin, Jerry


Roberts, Wyn (Conway)
Thatcher, Rt Hon Mrs Margaret
Wilkinson, John


Ross, Wm. (Londonderry)
Thomas, Rt Hon Peter (Hendon S)
Williams, Delwyn (Montgomery)


Rost, Peter




Royle, Sir Anthony
Thompson, Donald
Wolfson, Mark


Sainsbury, Hon Timothy
Thorne, Neil (Ilford South)
Young, Sir George (Acton)


Scott, Nicholas
Thornton, Malcolm
Younger, Rt Hon George


Shelton, William (Streatham)
Townend, John (Bridlington)



Shepherd, Colin (Hereford)
Townsend, Cyril D. (Bexleyheath)
TELLERS FOR THE NOES:


Shepherd, Richard (Aldridge-Br'hills)
Trippier, David
Mr, Spencer Le Marchant and


Shersby, Michael
Trotter, Neville
Mr. Anthony Borry.

Question accordingly negatived.

Main Question put and agreed to.

Resolved,
That this House supports the economic policies of Her Majesty's Government.

BUSINESS OF THE HOUSE

Ordered,
That, at this day's silting, the Justices of the Peace Bill [Lords], the Sale of Goods Bill [Lords] and the Papua New Guinea, Western Samoa and Nauru (Miscellaneous Provisions) Bill may be proceeded with, though opposed, until any hour.—[Mr. MacGregor.]

Orders of the Day — JUSTICES OF THE PEACE BILL [Lords]

Order for Second Reading read.

The Solicitor-General (Sir Ian Percival): I beg to move, That the Bill be now read a Second time.
This is the first Consolidation Bill to come before the House in this Parliament and I want to take this, the earliest, opportunity to pay tribute to the work done by the Joint Committee on Consolidation Bills. I think that most of those who have served on that Committee would agree that it is a rewarding task because its members feel that they really are contributing to the improvement of the statute book.
What is regrettably certain—and perhaps emphasised by the lack of attention in the Chamber at the moment—is that 99·9 per cent, of the time most of the important work of this Committee goes entirely unrecognised by the House. I wish to make it as clear as I can that, in my view, the work of the Committee should be more widely and more fully recognised, and I hope that it will be in future by both Front Benches.
Despite all the expert advice and assistance regularly given to members of the Committee by the Officers and Parliamentary Counsel, its work is still a heavy, and at times difficult, task even for the ordinary members of the Committee. I know that all members of the Committee, past and present, would like me to stress that the burdens placed upon the Chairman of that Committee are immense and that we have been unbelievably fortunate in the manner in which those burdens have been accepted and discharged by a series of most distinguished Chairmen, culminating with Lord Keith of Kinkel who now occupies the chair. We owe them a great debt of gratitude.
This Bill consolidates certain enactments from 1742 relating to justices of the peace, justices' clerks and the administrative and financial arrangements for magistrates' courts and connected matters. In addition to the consolidation

effected by it, the Bill gives effect to some recommendations made by the Law Commission. Save for those recommendations, it makes no change in the existing law. It has, of course, been considered by the Joint Committee on Consolidation Bills.
In its second report to both Houses, made on 18 July, the Committee reported that it had made two amendments to bring the Bill into conformity with existing law. It now consists of pure consolidation plus the implementation of the recommendations of the Law Commission. I commend the Bill to the House.

Mr. John Morris: The House will forgive me if at this late hour I merely endorse the remarks of the Solicitor-General and his praise for the Committee and its Chairman.

Mr. Bob Cryer: The Bill should not be accepted without a debate. It is an important Bill and goes wider than a normal consolidation measure. It incorporates recommendations by the Law Commission. It would be imprudent at this stage simply to accept it as a consolidation measure. A number of aspects require more thorough examination. I regret that the Law Commission did not examine the method of choosing justices of the peace. In many areas, including Bradford, too many justices of the peace are selected from too narrow a part of the community.
The consolidation measure deals sensibly with payments to justices of the peace, and the existing position is maintained. That is important, because justices should represent a cross-section of society. They should not be chosen from those who can afford the time off because they are managing directors of breweries, or housewives, for example, who do not have to go out to work. It is important that the financial provisions are maintained.
I regret that the Law Commission did not cast its eye over the system of secret committees which are involved in the selection of magistrates.

Mr. Deputy Speaker (Mr. Bryant God-man Irvine): Order. The hon. Member is referring to part of a White Paper.


Will he indicate exactly to what he is addressing his mind?

Mr. Cryer: I am dealing with the administrative and financial arrangements for magistrates' courts. The Law Commission makes a specific reference to that. What I am saying is—

Mr. Deputy Speaker: Order. Will the hon. Gentleman be more specific and say to which part of the White Paper he is referring?

Mr. Cryer: Pages 8 and 10 are relevant. The Law Commission refers specifically to justices of the peace for the City of London. I cannot say exactly where that appears in the White Paper. The consolidation measure also provides for the appointment of magistrates to the City of London. It has always been a matter of concern that officers of the City of London are automatically appointed as justices of the peace, in contrast to what happens in other parts of the country, where justices are appointed by secret committees. That method of selection is open to bias.

Mr. Deputy Speaker: Order. The hon. Member is entitled to address us only on the matters in the White Paper.

Mr. Cryer: Surely I can also say why I do not believe that consolidation should take place. Clause 19 specifically sets out the areas in which magistrates courts' committees can operate, including all metropolitan districts. I represent a metropolitan district, where a view is expressed—and the previous Lord Chancellor expressed the same view—

Mr. Deputy Speaker: Order. The hon. Gentleman should be indicating whether the consolidation measure is effective. Other matters are not relevant to the discussion.

Mr. Cryer: I should be grateful, Mr. Deputy Speaker, for your clarification of what is meant by "effective". My argument is that the consolidation measure is not effective in that, by drawing together various enactments and consolidating them, the administration of the justices of the peace is not effectively improved.

Mr. Deputy Speaker: Order. The hon. Gentleman is going beyond the scope of this debate, which is related to whether

the arrangements set out in the White Paper and in the Bill have effectively consolidated the various matters.

Mr. Cryer: I do not think that they have effectively consolidated the various matters, Mr. Deputy Speaker. The various matters that the Law Commission was considering have not been effectively consolidated, because the question of more open selection of magistrates has not been effectively covered—

Mr. Deputy Speaker: Order. That is not a matter which is included in the White Paper.

Mr. Cryer: Consolidation is normally put through the House on the basis of a few brief comments from either side, but it is an important matter and it has to be carried out effectively. A consolidated Bill is often kept in that form with very little change. The comments of the Law Commission have been incorporated into this consolidation measure. I hope that the Solicitor-General will state that this consolidation does not rule out any possible future change and that the Law Commission is continually reviewing the position of justices of the peace. I hope that this measure will not be accepted by the House on the basis that there can be no further change, because some of the matters that I have raised tonight are of serious concern to millions of citizens in this country.

Mr. John Prescott: I note your ruling, Mr. Deputy Speaker, about keeping strictly to the question of consolidation. I understood that the Bill was expected to go through all its stages this evening. We are now having the Second Reading of a financial clause—[Interruption.] We are debating a consolidation measure, but we have before us for discussion a financial clause—

Mr. Deputy Speaker: Order. At the moment we are on the Second Reading of the Bill. The money resolution will follow. Other stages of the Bill will take place at some other time. There is no indication of proceeding further today than Second Reading and the money resolution.

Mr. Prescott: I am grateful for your advice, Mr. Deputy Speaker. However.


I was under the impression that on Second Reading we would at least have an explanation of why changes may be needed in respect of the money resolution. It may be better to raise that subject when the money resolution is debated. Will that be this evening or later?

Mr. Deputy Speaker: The hon. Gentleman should look at the Order Paper. The money resolution comes next.

Mr. Prescott: Thank you, Mr. Deputy Speaker. I shall reserve my comments until then.

The Solicitor-General: Perhaps I might comment on what has been said. In introducing the Bill—

Mr. Deputy Speaker: Order. The hon, and learned Gentleman requires the leave of the House to speak again.

The Solicitor-General: I thought that I had asked for it, Mr. Deputy Speaker. If I did not, I ask for it now and hope that it will be given.
In opening the debate I referred to the regrettable lack of knowledge in this Chamber about the work of this Committee. The hon. Member for Keighley (Mr. Cryer) lost no time in reinforcing the validity of what I said. He was complaining that changes have not been made in the Bill. The one thing that cannot be made in a consolidation Bill is a change in the law—

Mr. Cryer: rose—

The Solicitor-General: Perhaps the hon. Gentleman will allow me to continue since I had the advantage of being a member of this Committee for a long time and therefore of having seen what it does. It must seek to ensure that the Bill does not make any changes in the law except those recommended by the Law Commission. No recommendation by the Law Commission relating to any such changes could have been made under that procedure.
I hope that the House will give the Bill a Second Reading.

Question put and agreed to.

Bill accordingly read a Second Time.

Bill committed to a Committee of the whole House.—[Mr. MacGregor.]

Committee tomorrow.

Orders of the Day — JUSTICES OF THE PEACE [MONEY]

Queen's Recommendation having been signified—

Motion made, and Question proposed,
That, for the purposes of any Act of the present Session to consolidate certain enactments relating to justices of the peace (including stipendiary magistrates), justices' clerks and the administrative and financial arrangements for magistrates' courts, with amendments to give effect to recommendations of the Law Commission, it is expedient to authorise the payment out of moneys provided by Parliament of any expenditure incurred by the Secretary of State in the payment of grants under that Act, in so far as any such expenditure is attributable to provisions of that Act which—

(a) relate to sums payable in respect of justices' clerks or persons employed to assist justices' clerks being sums payable under the enactments relating to social security or occupational pensions, or
(b) repeal any provisions of the Justices' Clerks Act 1877.—[Mr. MacGregor.]

Mr. John Prescott: I presumed that we would have an opportunity to debate the money resolution.

Mr. Deputy Speaker (Mr. Bryant Godman Irvine): Order. I have first to put the Question. The Question is as on the Order Paper.

Mr. Prescott: It is difficult to debate a money resolution without hearing what that resolution means. It may be written on the Order Paper, but that does not explain which parts and sections the resolution deals with. I have been advised by the various Officers of the House that the Bill has financial implications for social security and occupation pensions. The Financial Secretary should be here to explain that.

Mr. John Morris: My hon. Friend should allow the Solicitor-General to explain the money resolution. Perhaps following that he could catch Mr. Deputy Speaker's eye.

Mr. Prescott: I am grateful to my right hon, and learned Friend, but I thought that I was going to lose the opportunity to speak in the interval between the motion being moved and the Question being put. If one does not move quickly in the House, my experience is that one cries afterwards. I invite the


Solicitor-General to explain the money resolution.

The Solicitor-General (Sir Ian Percival): If the hon. Gentleman will speak to the money resolution I shall do my best to answer any questions that he raises. The resolution speaks for itself. That is what is asked of the House, and the House will pass that resolution.

Mr. Prescott: I am in some difficulty because, like any hon. Member, I take advice from the Public Bill Office about such measures. The reason for this money resolution—the Bill has come from the House of Lords—is that money resolutions must be dealt with by this House. However, when we get that resolution we do not find a satisfactory explanation of its meaning. That may be a laughing matter to some hon. Members, but it is important that the House should explain fully how, and in what measure, moneys are to be paid to clerks of the court. I can raise points as a layman, but this is not a satisfactory way to deal with money resolutions.
I hope that I shall have the leave of the House to speak again if I am wrong, but the money resolution provides an opportunity for extra payments to be made to the clerks of the court with regard to social security legislation and social security pensions that allow for extra payments to be made in cases of occupational pensions. In those cases where an arrangement has been made about pensions greater than the minimum required by the State one can opt out of that arrangement. Apparently clerks to the justices have to be dealt with in that way. That is the reason for the money resolution. If remuneration is increased for those people, will their responsibilities also increase? In clause 27 some of those duties are spelt out.
Not many of my constituents have read the measure. However, I have received a petition from 2,000 people, although they were not aware of the Committee on which the Solicitor-General served. Those 2,000 people were concerned about the activities of magistrates and the advice that they receive from their clerks. My constituents are particularly concerned about considerable debts which they owe to the electricity board and what happens when the

board approaches magistrates to ask them to sign a warrant to enable it to enter people's houses to cut off electricity supplies. If a magistrate signs the warrant without satisfying himself that it is justified, my constituents may find that their electricity is cut off. They demand that the advice given to magistrates should be much more valid than it is at present and that they be given a right of defence against such warrants. Magistrates should question whether the warrants are justified. I hope that the Solicitor-General will advise magistrates to be much more careful about signing warrants and more critical in their approach.
The matter has caused great concern to a number of my local councillors, including Norman Kendrew, Ron Garniss, Nellie Stephenson, Mrs. Giblin and others, who drafted the petition. I hope that the Solicitor-General can give them some comfort and hope for change.

Mr. John Morris: I support what has been said by my hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott). The name of the Financial Secretary to the Treasury is traditionally appended to a money resolution, but he is not expected to be here to explain the resolution. That is a matter for the Minister in charge of the Bill. When an hon. Member asks for an explanation of a money resolution, it is incumbent upon the Minister in charge of the Bill to rise immediately to explain it. If he does not do so he is not doing his duty to the House, and it may mean that he does not understand the resolution.
As a matter of courtesy, and for future reference, the Solicitor-General should know what is the tradition of the House when such motions are moved.

Mr. Bob Cryer: I wish to raise a matter that comes under the financial facilities for the Bill and is covered on page 9 of the Law Commission's report, where it points out that the Justices of the Peace Act 1949 has not been amended and kept up to date in relation to the social security legislation now in force.
I hope that the Solicitor-General will be able to assure us that payments under the money resolution will enable all


necessary national insurance and social security benefits to be paid, where applicable, to justices of the peace.
It is important that magistrates should not be out of pocket when they are losing wages and dependent upon expenses being paid. That affects particularly the men and women who work by hand or brain and sit on the magistrates' bench, even though their jobs do not provide for continuous payments of wages or salaries while they are on the bench.
If, as the Law Commission report suggests, there is some inconsistency in national insurance payments, such people could be in difficulty. I hope that the Solicitor-General will assure us that the money resolution will ensure that full payments will be made so that the magistrates bench contains a proper cross-section of society and there is every opportunity for those with a wage-earning job to go on the bench without any loss of their earnings or insurance position.

The Solicitor-General (Sir Ian Percival): I am sappy to have the chance to comment on what has been said. I think that it is regrettable that the right hon, and learned Member for Aberavon (Mr. Morris) had to be a little nasty about what happened. I was about to get to my feet when he rose to his. According to the usual courtesies of the House I remained seated even though I was anxious to answer straight away the questions that the hon. Member for Kingston upon Hull, East (Mr. Prescott) put to me. I have a good relationship with him, he having been my opponent in Southport on one occasion.

Mr. John Morris: I tried to give the hon, and learned Gentleman an opportunity to do his duty to the House in the course of my intervention in the speech of my hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott). Whenever a money resolution is tabled it is the Minister's duty—and it is incumbent upon him so to do—to proffer an explanation when it is requested by the House.

The Solicitor-General: The right hon, and learned Gentleman must take it from me that I do not need him to tell me what is incumbent upon me as the holder

of my office. He has had his say, so perhaps he will have the courtesy to allow me to say my piece.
The hon. Member for Kingston upon Hull, East, had his bit of fun about warrants. Life is dull without a bit of fun, but he did put two serious queries about the effect of the money resolution. There are some who would regard it as sensible—perhaps not the right hon, and learned Member for Aberavon, but that does not worry me unduly—for me to deal with precise points that the hon. Member for Kingston upon Hull, East wants to hear about, rather than with points that no one wants to hear about. The hon. Gentleman made his points, and I assure him that they will receive attention. If there is anything that should be added to what I am not going to say, that will be done. The hon. Gentleman put his requests to me courteously and specifically.
The reason why there is a money resolution—it would not have been very difficult for right hon, and hon. Members to have worked it out if they had looked before they came into the Chamber—is that two of the recommendations, which I shall spell out for the right hon, and learned Member for Aberavon—

Mr. John Morris: For the House.

The Solicitor-General: I do not think that other hon. Members need an explanation of the recommendations that are in the Law Commission's report quite so much as does the right hon, and learned Gentleman.
Though it is unlikely that in practice the recommendations will make any difference to expenditure, in theory they might. All that the money resolution does is this. Having given a Second Reading to a Bill that contains proposals that might result in increased expenditure, the House must, to give effect to the Bill, pass the money resolution authorising it. It does not authorise anything else, which answers the question of the hon. Member for Keighley (Mr. Cryer). The only increased expenditure that can be paid under this money resolution is such increased expenditure as might result from either of those recommendations. That is the extent of the effect of this money resolution.

Question put and agreed to.

Resolved,
That, for the purposes of any Act of the present Session to consolidate certain enactments relating to justices of the peace (including stipendiary magistrates), justices' clerks and the administrative and financial arrangements for magistrates' courts, with amendments to give effect to recommendations of the Law Commission, it is expedient to authorise the payment out of moneys provided by Parliament of any expenditure incurred by the Secretary of State in the payment of grants under that Act, in so far as any such expenditure is attributable to provisions of that Act which—

(a) relate to sums payable in respect of justices' clerks or persons employed to assist justices' clerks, being sums payable under the enactments relating to social security or occupational pensions, or
(b) repeal any provisions of the Justices' Clerks Act 1877.

Orders of the Day — SALE OF GOODS BILL [Lords.]

Order for Second Reading read

The Solicitor-General (Sir Ian Percival): I beg to move, That the Bill be now read a Second time.
This is another consolidation measure, which no doubt will raise equally interesting questions, though I hope questions of a little more substance than those that we have just had.
The Bill consolidates almost all the provisions of the Sale of Goods Act 1893, as amended, so as to bring statute law on this important topic into one enactment. It is pure consolidation and makes no changes in the existing law.
The Bill has, of course, been examined by the Joint Committee. In this case, the Committee, in its first report to both Houses on 11 July 1979, made three amendments to bring the Bill into conformity with existing law, and one amendment to improve the form of the Bill. None of the amendments effects any change in the law.
The Committee reported that it was of the opinion that the Bill, as amended, was pure consolidation and that there was no point to which the attention of Parliament should be drawn.
The Bill deals with matters of great importance in the commercial world. It is to come into force on 1 January 1980, and it is therefore desirable that the Bill

be passed as soon as possible so as to give people time to acquaint themselves with it. Accordingly, I hope that the Bill will be given a fair wind.

Question put and agreed to.

Bill accordingly read a Second Time

Bill committed to a Committee of the whole House.—[Mr. MacGregor.]

Bill immediately considered in Committee; reported, without amendment.

Motion made, and Question, That the Bill be now read the Third Time, put forthwith pursuant to Standing Order No. 56 (Third Reading) and agreed to.

Bill accordingly read the Third time and passed without amendment.

PAPUA NEW GUINEA, WESTERN SAMOA AND NAURU (MISCELLANEOUS PROVISIONS) BILL

Considered in Committee; reported without amendment; read the Third time and passed.

Orders of the Day — COURTAULDS, PRESTON (MILL CLOSURE)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. MacGregor.]

Mr. Robert Atkins: I wish to bring to the attention of the House a disaster that hit my constituency and the whole town of Preston last Friday, 16 November. On that day the board of Courtaulds announced the proposed closure of the Red Scar mill in Preston, with the effect eventually—after 90 days—of the loss of about 2,600 jobs. About 32 per cent, of the workers who will lose their jobs are of Asian origin. The House will recognise that that fact, added to the general loss of employment caused by the closure, is a matter of considerable concern, and could be long lasting.
In addition to that proposed closure, the Preston area has suffered from the closure of yet another mill—that of A. S. Orr—with the loss of about 800 jobs. Further, it is the intention—I think unanimous—of all parties concerned within the Preston area to close the docks, because of the losses that have been made


there, with a further 400 jobs being at risk. We recently had the announcement of a further 150 jobs being lost as a result of redundancies at Plumbs, the mail order company.
The total effect is the direct loss of 4,000 jobs in recent weeks, or in the near future. The result in terms of dependent companies and industries is perhaps greater than I can depict—it is certainly 5,000 to 6,000 jobs lost.
It must be said that the people who worked in the Courtaulds mill are industrious, and to my knowledge there has never been any criticism of their record of productivity and hard work. Industrial relations have been very good.
The process involved at the Red Scar mill is twofold: the production of industrial yarn—viscose yarn—and textile yarn. The industrial yarn, which comprises about half of the operation, is used specifically for tyres. I do not have to remind hon. Members that tyres last much longer than they did years ago, sometimes giving twice or even three times the mileage. Consequently, less of the yarn used in their construction is required. Moreover, steel cord is more often used. Added to that is the increased import of foreign cars, with tyres also made abroad.
The process has been losing substantial amounts of money over the years, and I think it is generally accepted in Preston and the company, and by people who are familiar with the process, that it is a declining, perhaps a dying, operation. However, textile yarn production is a different story.
I take a different attitude from that of Courtaulds in relation to this aspect. The trade unions in the Preston area and in the mill believe that the technology used in the operation must be maintained. I hope that in due course a delegation that I intend to bring to meet Ministers to discuss the problem will make that point strongly and forcefully.
In addition to support from the trade unions, I have received in recent days letters from senior managers at Courtaulds, telling me of their expert opinion as to the viability of the textile yarn process. I can do no better than to quote from some of their remarks. I repeat that they are senior managers, people involved in day-to-day activities at the mill. They are all constituents.
One manager says:
There remains a strong body of opinion amongst senior management that we should be given an extended opportunity to operate a textile factory and to prepare the ground for capital investment in new machinery with a known work force. We could yet find a successful future contributing more than the £l5 million worth of goods now being exported, all of which we will lose if the plant closes.
Another letter states:
A recent digest of news and information issued by the company"—
Courtaulds itself—
forecast that demand for our textile yarn world wide would decline from 410 million metric tonnes in 1985 to 390 million tonnes in 1990.
My correspondent says:
This is a negligible fall spread over the next decade.
He goes on to say:
Our home trade customers will have no other source of supply in the United Kingdom. They will therefore be compelled to buy their yarns from abroad, adding further to our balance of payments deficit and causing our foreign competitors to laugh all the way to their banks.
My correspondent also complains of the attitude of Courtaulds and maintains that little of the profit that has been made in this textile yarn operation has been put back into keeping Red Scar up to date.
Another correspondent adds that this particular textile process
is selling all it can make at a profit. Our only embarrassment is that we cannot make even more.
Finally, in this context, a letter from another constituent emphasises:
I believe Red Scar has an excellent record in the world's export markets, topping £15 million annually. If production at Red Scar ceases, the country would lose the benefits of these exports and would also have to cope with imports of rayon yarn from foreign manufacturers supplying our home trade markets which Red Scar now supplies—all this with a detrimental effect to our balance of payments.
He quotes an article in the Daily Telegraph as saying:
When the textile cycle turns decisively for the better, accumulation of shares in this field will have proved to have been the right decision.
Those are the views of my constituents—senior managers and those involved in the trade unions—working at the mill. All believe that the textile yarn operation is worthy of further investigation and


capable of retention, albeit in a reduced form.
I must emphasise, and I hope that the Minister will bear in mind, the views of senior managers and trade union leaders, and of people in the town. The senior managers to whom I have referred and who have written to me are presenting to the board for further consideration proposals that they have formulated on the possibility of retaining some reduced operation.
All is not yet lost. This mill is an important one within the town of Preston. Apart from local government, the mill, in industrial terms, is the second largest employer in Preston. It has a part to play. If the mill had to close, the site on which it is based is a prime site—adjacent to the M6 motorway, and close to Preston with its motorway and railway facilities—that would be of benefit to any potential employer. I should like to know whether some kind of operation can be retained. If that is not possible—and I am not yet convinced it is not—we may need to examine an alternative. That alternative will need the assistance of the Government and various other organisations that can help.
I must say that I have not been over-impressed at the way in which Courtaulds has behaved over the closure. One of my correspondents—a senior manager—who knows more about the day-to-day activities than myself believes there has been a lack of reinvestment by Courtaulds of the profits made at Red Scar.
I understand from Ministers at the Department of Employment that little notice was given of this proposed closure—literally a few hours—which is not usually the convention with such a major closure. I have written to the chairman of Courtaulds—I hope that he will heed it—saying that if closure goes through, and even if it does not, if it results in some people being unemployed in part, those concerned should be given generous severance pay because their record of hard work in the industry deserves it.
I am asking the Minister to consider two main points. First, when the delegation comes to meet him and the Under-Secretary of State for Employment, I hope that he will listen to it. It comprises leaders of the unions, representatives

of the borough council, on both sides, as well as the officers and the chairman of the central Lancashire new town development corporation, who is so closely involved in all that affects the Preston area. I hope that the Minister will listen to the case for partial, as opposed to total, closure, and particularly the possible retention of the textile yarn operation. The technology can be valuable to this country. Courtaulds is unique in this field, and if it closes no other mill will be capable of supplying this yarn. The effect, particularly upon our imports and thus on our balance of payments, could be serious. The Government need to consider this.
Secondly, the effects of all these unemployed people being put on the employment market will raise unemployment in Preston to nearly 8 per cent. In that circumstance, the case for development area status is overwhelming. I subscribe strongly to the belief that if subsidies are spread thinly, those who need them do not get enough. I support the Government's policy of attracting aid to areas which need it particularly. This is a case in point. Preston needs this status, albeit for a short period to allow the aid to act as a primer to replace the jobs and the industry that will be lost if the closure, wholly or partly, goes ahead.

Mr. John Patten: I realise that my hon. Friend is discussing a serious point of great importance to his constituency, and I should be the last to attempt to introduce party political points when the fate of a large number of those employed in Preston is involved, but does he not find it surprising that the hon. Member for Preston, South (Mr. Thorne) is not present—nor any other Labour Members? I wonder what conclusions he draws from that.

Mr. Atkins: I am grateful for that intervention. It is indeed sad that, on a matter so serious to Preston and the North-West generally, not one Labour Member is present. I hope that the people of Preston will notice that fact and draw the necessary conclusions.
As I say, Preston needs development area status. The people are particularly fortunate in their borough council, which has the lowest rates of any borough council in Lancashire—a result of three years


of Conservative control. People are consequently prepared to come to Preston.
In addition, the central Lancashire new town development corporation, chaired so ably by the former Member for Clitheroe, Sir Frank Pearson, gives much help to Preston and the neighbouring towns of Chorley and Leyland. In that context it has indicated its concern and how much it wishes to assist the borough council and the Government with plans to help Preston in this difficult time.
This is a savage blow to my constituency and to Preston generally. With the Prestonians' initiative, history of hard work and industry, and commitment to achieve success in whatever field they turn their hands, I do not believe that all is lost. The mill can in part be retained or restored, particularly for textile yarns. If either of those options fail—and I would need proof that they will—we can redevelop the site to the benefit of Preston and the area as a whole.
I ask the Government to give urgent and compassionate consideration to those two points. They should meet the delegation and hear its case, and give urgent consideration to granting Preston development area status in the short or long-term. We need only temporary help. I am sure that the Minister will look kindly on Preston's problems in the short term and give us the assistance that we need.

The Under-Secretary of State for Industry (Mr. David Mitchell): I congratulate my hon. Friend the Member for Preston, North (Mr. Atkins) on securing the debate and on his energy and powerful advocacy on behalf of his constituents, which has resulted in his being able to raise the matter in this House so soon after the announcement of closure only 10 days ago.

Mr. John Patten: What about Labour Members?

Mr. Mitchell: It is a pity that, on a matter of such great importance to the area, the interest of Labour Members is shown by the array of empty Benches. However, it is late at night and is a matter for them.
I join my hon. Friend the Member for Preston, North in genuinely expressing sympathy for those who are to lose their jobs and the whole community affected

by the closure, which comes on top of the closure of the A. S. Orr textile mill at Bamber Bridge and the rundown of Preston docks.
My hon. Friend used the word "disaster", and it is a disaster for the local community. However, we have to face realities, uncomfortable though they may be to live with. There is surplus capacity throughout Europe in viscous cord yarn used for tyres. Tyres now last longer, yarn is being replaced by steel and there are other technical changes. The market is shrinking, and no British Government can create demand where none exists. It would not be right for the Government to seek to prop up that part of the business carried out at the mill where there is no long-term future.
The problem is exacerbated by the fact that the proportion of cars imported from abroad has substantially increased. That has a direct impact on companies whose main life is in supplying the British car industry. The figures show the penetration of imported cars into the United Kingdom. In 1974 that represented 30 per cent.. By 1978 it had risen to no less than 56 per cent. The tyres are imported "on the hoof"—on the car as it arrives—and part of the market is therefore closed to the British producer.
There is the tragedy of the British motor car industry itself. The potential market should have been greater, but the fall in passenger car production in Britain between 1976 and 1978 was no less than 110,000 From the first 10 months of this year it appears that the accelerating decline will continue and that there will be about 180,000 fewer passenger cars than there should have been.
The Red Scar mill was greatly tied to the success of the British tyre-making industry. My hon. Friend made important points about the possibility of producing rayon filament fibre—not staple fibre—which has been produced in the factory since 1939. To some extent, it has been superseded in the market for suit linings by nylon and acetate. The market is changing, and that presents difficulties. However, my hon. Friend claimed that the production is viable. He quoted letters from senior managers who claim that the company makes a profit from that production.
My hon. Friend should not overlook the problem facing a factory when half


its overheads are carried on another product. If it closes down the other product, the whole of the overheads land on the one product and it may not be as profitable as formerly. It could be driven to the point where it is not profitable. My hon. Friend has made a significant case, backed by the views of his constituents and the consultation that he has made. He must explore with the company the possibility of further limited production. No doubt if it is viable the company will be in business to make a profit. Alternatively, others may want to take over the site and carry on production. I notice that my hon. Friend is to bring a deputation to the Department of Industry, and we shall explore the possibility of partial production being continued. My right hon. Friend the Secretary of State will listen with great care to what is said.
My hon. Friend raises the question whether Preston should become an assisted area. We have embarked on a policy of seeking to concentrate assistance, under our assisted area programme, on areas of highest unemployment and greatest need. The policy has been in operation since 1930, yet there still persists in those areas which were worst hit by unemployment in the 1930s long-term structural persistent unemployment. There are 40,000 unemployed in Newcastle and Hartlepool, and there is massive unemployment on Merseyside. If we are to resolve the problems of the special development areas we must concentrate the assistance on the areas of greatest need and not spread it thinly around the country. It is against that background that I must ask myself whether there is a valid case for saying that Preston should have greater assistance than is accorded to it.
In October 1979 the Preston travel-to-work area had 5·1 per cent, unemployed. In Great Britain as a whole there was an unemployment rate of 5·5 per cent. Therefore, the rate at Preston is better than the national average. That is the position before the closures take effect, and before that happens there can be no conceivable case for other areas that are worse off being invited to help to give Preston a higher degree of assisted area status.
Let us consider the numbers that will be unemployed because of the closures. At Courtaulds at Red Scar there will be

2,600. We have had the Carrington Viyella mill closure, where 806 have been made unemployed. At Coppulls 266 will be unemployed. The total is 3,672. As my hon. Friend said, 350 men have been made unemployed at the port. However, that will take place over a period. The basic total is 3,600. That lifts the percentage of unemployment to 7·6 per cent. That is not sufficient to make Preston an enhanced assisted area as my hon. Friend asks.

Mr. Robert Atkins: Is my hon. Friend aware that Scarborough and Whitby have levels of unemployment of about 5 per cent, and have development area status?

Mr. Mitchell: I am sorry that my hon. Friend is misinformed. The problem at Whitby is that unemployment in October was 10·8 per cent. Whitby is not comparable with Preston.
We recognise my hon. Friend's concern. We are joining him in being worried about Preston. We shall consider any further representations that he wishes to make on assisted area status. However, we must ascertain whether there is any change in the relative position of Preston compared with the present figures, and whether the situation will become as serious as my hon. Friend fears with the passage of time. If there is a change in the relative position of Preston, we shall be prepared to reconsider whether the assisted area status should decline from intermediate area status to non-assisted area status in 1982. In the meantime I must tell my hon. Friend that section 7 assistance under the Industry Act, in accordance with the new criteria laid down by the Secretary of State in the summer, will be available until 1982 for viable projects that will benefit employment in terms of projects but which, without section 7 assistance, would not go ahead.
If I have not been able to meet my hon. Friend's requests in the form in which he has made them, I assure him that we shall meet the delegation from his constituency and hear its case. We shall consider the case in depth. We shall be much the better able to do that because of the way in which he has deployed the case in this Adjournment debate. He has enabled us to have advance notice of the matters that he wishes us to consider more closely. I


accept that it is a serious matter. The Government are deeply concerned about those who will lose their jobs—

The Question having been proposed after Ten o'clock and the debate having

continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at nineteen minutes past Eleven o'clock.